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.
Are you really preapproved or just prequalified for a mortgage? Part 1
February 21, 2012 by 3 Comments
How Much Home Can I Buy in Seattle with $45,000
October 18, 2011 by 2 Comments
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.
Risk and Reward: the Trade-offs of Buying a Distressed Home
September 16, 2011 by Leave a Comment
Many home buyers are interested in taking advantage of the lower prices offered on distressed homes. Distressed homes are those that are short sales or foreclosures (REO) and in the Seattle area, the sales price of distressed homes were discounted about 37.4% in August over a "non-distressed" home.
Something to keep in mind before you buy a "discounted" distressed home is that these transactions are not as "easy" as a traditional, non-distressed sale. For starters, you're most likely dealing with a bank (and/or one of their representatives) as one of the selling parties. As much as you would think they really want to sell the property to get it off their books, they can leave you wondering where their heads are at throughout the transaction.
This may be especially true with a short-sale if there are two mortgages on the property. Sometimes the second mortgage/lien holder will take their sweet time approving the transaction and just prior to closing, only to demand that "someone" pay them thousands of dollars to close. By the way, this extortion money payment must be disclosed on the HUD-1 Settlement Statement or it's fraud. Even if the first and second mortgage are with the same bank/lender, please do not assume they won't play games with you or each other…it happens.
Something else that I've recently seen happen with distressed property is vandalism…just days before closing, someone steals the appliances or even takes plants from the garden. Vandalism could happen to non-distressed home as well but since most of these properties are vacant, they seem to be getting targeted.
These transactions tend to take longer to close and may have more drama. Be prepared to have your rate lock extended, perhaps a few times! If you're patient and can keep in mind that you're probably getting a discounted price, the rewards may be worth it if you can tolerate the risk and all that goes with it.
In my experience, I've found that Fannie Mae Homepath properties have had the least amount of issues especially when you factor in the attractive financing programs that are available for owner occupied and investment property.
If you're considering buying a short sale or foreclosed home anywhere in Washington state, I'm happy to help you with the financing.
Seattle Homebuyers Surprised by Multiple Offers on “Ideal” Homes
August 25, 2011 by Leave a Comment
Earlier this month, Aubrey Cohen of the Seattle PI wrote "Home buyers finding competition for nice homes in Seattle". As a Mortgage Originator, I find that many of the home buyers that I'm working with are discovering it's taking a longer amount of time to find the "right home" due to lack of inventory and then, once they do find one they're interested in, they discover they're not alone. David Billings of Redfin, says:
"When the ideal, cute, turn-key starter home comes on market at a price that a buyer feels is a decent value, they're shocked to find that there are lots (three, four, maybe six) of other buyers that feel just like they do," …"After having patiently waited out the market and read every article about how terrible Seattle real estate is, they can't believe they'll need to pay full list price, let alone the possibility of paying more in order to beat out others. It takes some time for them to come to grips with this reality and get competitive with their offers, or adjust their search to a home that needs some work, or is in a slightly less prime location."
The article reports the "hottest" homes are priced under $500,000 "turn-key…staged, painted…" located in the neighborhoods of Northeast Seattle, Capitol Hill-Montlake and Ballard-Greenlake. "Multiple offers have jumped from between 30 and 35 percent to 40 and 50 percent, hitting 51.4 percent in Ballard".
What's a Ballard Home Buyer to Do? Actually, I think this applies to any home buyer who's considering making an offer on a home, especially if it's one that is "ideal" and newly listed.
- Meet with a local licensed Mortgage Originator to review your financial options and get preapproved. You really can't start this process too early – even if you're not planning on buying for a year, meeting with a mortgage originator and reviewing your credit and assets (funds for down payment) ahead of time may help put you in the best position possible for when your "ideal home" comes on the market.
- Have a plan and set your limits. Determine what mortgage payment you're comfortable paying and what down payment you're willing to part with (this may be a lower amount than what you're approved for).
- Develop thick skin. Buying a home can be emotional – especially in a bidding situation. Be prepared that you may not win a bid and stick to your price range.
- Work with a professional real estate agent. Get referrals and check out your real estate agent just as you would when selecting a mortgage professional. Some agents, especially in this market where their commissions may be down, may be more interested in making a sale than looking out for you. I'm happy share my recommendations with you.
- Be patient. Some of my clients have taken up to a year or more enduring several bidding wars before landing their home.
In a multiple offer situation, you're going to need to present yourself as a strong buyer, which includes having a well written preapproval letter. The Seller has probably heard plenty of horror stories of failed transactions due to tougher underwriting guidelines and they're going to want to select a strong buyer. Other factors may also include how quickly the transaction can close, especially if the home is vacant or if the seller has an offer pending on their next home.
In a possible bidding situation, I will often prepare several preapproval letters at various price points for my clients so they can determine just how high they want to go with the potential sales price.
With home prices in Washington reaching "record affordability" combined with historically low mortgage rates, many home buyers are looking for their "ideal home" at a more reasonable price or a distressed property at a discounted price.
Bottom line, be as prepared as possible and start the preapproval process early. If you're considering buying a home located anywhere in Washington State, I'd love to work with you.
Preapproval Letters Defined and Updated
April 29, 2011 by Leave a Comment
This is an update from a post I wrote back in early 2007 about preapproval letters. So much has changed in the mortgage industry in the past few years that I thought it was worth refreshing this post with updated information.
The preapproval letter is a tool typically drafted by a loan originator to be used by a buyer’s real estate agent when presenting an offer on a property. The letter may be in the form of a certificate or be an actual letter on the lender’s letterhead. The preapproval letter is intended to assure the seller and the listing agent that the buyer has been buyer has been approved by the lender and therefore accepting an offer from this buyer, there should ideally not be any financing issues with the buyer.
When I prepare a preapproval letter, it usually contains the following (depending on the program):
- Effective dates (the date the letter was written) and expiration date.
- The borrower’s names (who is approved for financing).
- The sales price and loan amounts they are approved for.
- Maximum mortgage payment (including any home owners association dues) the borrower is qualifed for. NOTE: this is very important when we're in an environment where rates may rise quickly.
- The type of financing is confirmed (ex. Conventional, FHA, VA, USDA, etc.)
- Credit has been reviewed.
- Employment and income has been confirmed.
- Down payment and funds for closing (closing costs, prepaids and reserves) are verified.
- Any closing cost that are being requested to be paid for from the seller.
- Any item the preapproval is subject to (such as satisfactory appraisal, title, complete purchase and sale agreement, etc.).
- Mortgage originators name and contact information.
If these items have not been actually verified with proper documentation, then a buyer has been prequalified—not preapproved. BIG DIFFERENCE. Being prequalified essentially means that a verbal interview has been conducted without providing all of the necessary supporting documents (pay stubs, W2s, bank statements—again, depending on the type documentation required for the specific loan “full doc” to “no doc”). A Good Faith Estimate does not constitute a preapproval.
The preapproval letter does not contain private information such as a buyer’s credit score or their additional assets. It is a sales tool for the buyer’s agent and if there are multiple offers presented on a home, having a strong preapproval letter is an advantage. This is one reason why it is crucial for buyers to become preapproved before they begin shopping for their next home. Many listings agents will not even consider an offer unless the buyer has been preapproved.
The preapproval letter is generally effective a specific amount of days, depending on when supporting documentation is set to expire (such as the credit report). Updating a preapproval letter is simply re-running the credit and possibly obtaining most recent income and asset documentation (paystubs and bank statements). On occasion, the buyer’s agent may request a revised preapproval letter if they are presenting an offer on a home that is priced for less than what the buyer is approved for and if they are asking for closing costs. It's not uncommon for me to issue several preapproval letters for a home buyer based on different homes or offers they are presenting.
Real estate agents may also consider who the preapproval letter is from, and they may contact the lender to confirm the buyer is indeed prepproved and not just prequalified. Many agents will tell you that the preapproval letter is only worth the paper it’s printed on. This is also why it’s very important to be selective with lender you work with…it could possibly impact whether or not your offer is accepted on your next home.
I highly recommend starting the process early (6 to 12 months before you're planning on buying) just in case there are unknown credit or down payment issues. I can also prepare preapproval letters on weekends as long as I have been provided all of your supporting documentation. If you're considering purchasing a home located anywhere in Washington state and need a preapproval letter, I'm happy to help you!
