A preapproval is the next step after becoming prequalifed. Essentially, this means that you are supplying all of the documentation that is required to support your loan scenario. Everything you have told the Loan Originator needs to be backed up for a “full doc” loan. The mortgage originator will review your supporting documentation (W2s, paystubs, asset accounts, credit report—tax returns if you’re self employed or paid commission…etc.) and make sure that they have a strong file for the underwriter. Once you have selected your mortgage program, your information is typically submitted to an AUS (automated underwriting system aka a computer) which produces “findings”. The findings detail what type of documentation is required for the loan approval. Sometimes the findings will require less or more documentation than a mortgage originator has obtained. Different lenders may have their own underwriting overlays in addition to what the AUS has provided.
Are you really preapproved or just prequalified for a mortgage? Part 2
Are you really preapproved or just prequalified for a mortgage? Part 1
There’s quite a difference between being prequalifed for a mortgage and preapproved. The letters that Loan Originators provide when requested for a prequal or preapproval may appear very similar. In fact, I’ve talked to borrowers on the phone who thought they were actually preapproved, when all they really had was a rate quote worksheet or possible a good faith estimate from a lender. A good faith estimate, loan estiamte or rate quote worksheet are not a commitment to lend and do not indicate that someone has been prequalified.
What Do You Need for a Preapproval?
If you’re considering buying a home, many real estate agents and/or sellers will require a preapproval letter. A preapproval letter is different than being “prequalified”. Being prequalifed means that you have provided verbal information to a mortgage originator to get an idea of what you qualify for. Being preapproved means that you are providing documentation that supports the information you have provided. Income, employment, assets and credit are verified for a preapproval.
Some preapproval letters aren’t worth the paper they’re written on. Especially if the mortgage originator you’re working with does not require supporting documentation before preparing the letter. If you have not provided supporting documentation (listed below) to your mortgage originator – you’re probably just prequalified and not actually preapproved.
Here is a list of documents you may be required to provide in order to obtain a preapproval:
The Risk of Extended Closings
With more short sales taking place, many home buyers are having to wait months before their closing date is here. The same may be true for those who are buying homes that are being constructed. With a delayed closing, there are some additional risk involved that buyers should be aware of so they can take action, when possible, to protect themselves. Some risks, borrowers have more control over than others. [Read more…]
How Much Home Can I Buy in Seattle with $45,000
I'm working with a couple who have saved $45,000 to buy a home in the greater Seattle area. Since conforming and FHA loan limits have been reduced to $506,000 in King County for the remainder of 2011, it reduces what they could have purchased a month or two ago.
FHA. Using an FHA insured mortgage, the couple can buy a home with a sales price of up to $551,000 assuming the seller pays for their closing cost and prepaids or that rebate pricing is used to cover closing cost and prepaids (or a combo of both). The buyer must pay for the down payment with their own funds and gift funds are allowed by family for the down payment. This is a pretty straight forward $506,000 loan limit pluse the $45,000 down payment.
Conventional. $462,000 is the highest sales price with conventional financing based on using a conforming mortgage of $417,000 which would have the loan to value just over 90%. This scenario would also have private mortgage insurance which could be paid monthly, in a one time lump sum or as a "split premium" (a combo of both). With a loan to value of just over 90% means that the rate of private mortgage insurance will be much higher than if the buyers stick to a 90% loan to value. With a loan to value just over 90%, sellers are limited to contributing 3% towards closing cost.
If the buyers go this route, the maximum sales price they would qualify for with 10% down payment is $450,000 and sellers can contribute up to 6% towards allowable closing cost.
Conforming High Balance: Loan amounts from $417,001 to $506,000 in the Seattle area may go up to 90% loan to value with private mortgage insurance, however 10% of the funds (the down payment) must be the borrowers and gifts are allowed only after the borrower has met the 10% requirement. Conventional loan amounts over $417,000 don't appear to pencil out for this scenario.
NOTE: With conventional mortgages, if the gift from family is 20% or more, then there are no minimum required investments for the borrower.
VA. If my clients had served in the military and qualified for a VA loan, the maximum sales price in King County with a $45,000 down payment would be $680,000 assuming the sellers pay for all closing cost and prepaids or rebate pricing is used to offset the cost.
Technically, home buyers do not qualify for a "sales price". They qualify based on the total mortgage payment (income and debts) and based on what funds they have available for down payment will dictate how much "sales price" they can buy.
If you would like to see what sales price you qualify for or become preapproved to buy a home anywhere in Washington, please contact me.
