What is the difference between a Preapproval Letter and a Loan Commitment Letter?

May 14, 2013 by 7 Comments

j0403639_2Last week I shared how it’s pretty much mandatory that if you are a home buyer making an offer on a home located in the greater Seattle area, you better be equipped with a strong preapproval letter from a reputable lender.

Some home buyers are taking this a step further and requesting a Loan Commitment Letter from their lender. What’s the difference?

There are actually three levels of qualifications that a potential home buyer may have after contacting a lender. Please keep in mind that not all lenders may have the same standards or definitions as what I’m posting here.

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Filed Under: Residential Purchase Tagged With: , , ,

The biggest issue with buying a home today in Seattle

February 6, 2013 by Leave a Comment

Yesterday I met for coffee with one of my clients who is hoping to buy a home in a Seattle area neighborhood for around $600,000. They have already taken one of the most important steps in the home buying process by getting preapproved for a mortgage.

The preapproval process required they complete a loan application and provide me with documentation that supports the information provided on the loan application (such as W2s, paystubs and bank statements). After having a complete application, I am able to run their credit reports and run the scenario through automated underwriting, which provides us with an approval and conditions to that approval.

Here’s a bit from our conversation with a few of their questions.

Is it challenging to qualify for a home in Seattle?

It’s really not that hard to qualify. Presently our underwriting guidelines will allow:

  • a low-mid credit score of 640 for FHA
  • a minimum down payment of 3.5%, which can be gifted by a family member. NOTE: FHA Jumbo’s will soon have a minimum down payment of 5%. In the greater Seattle area, FHA Jumbo’s are loan amounts from $417,001 to $567,500
  • VA home buyers can have a low-mid credit score of 620 with zero down payment up to $500,000. A $600,000 sales price would have a down payment of $25,000 with a VA Jumbo.
  • Home buyers need a two year employment history (sometimes your college education may count as an employment history)
  • Income must be documented and consistent. NOTE: if your self-employed, paid commission or hourly (vs. salary), you will need a two year history and income will be averaged.  NOTE: If you are planning on using your 2012 income, you may want to consider filing your income taxes as soon as possible.
  • Down payment and funds for closing must be documented with complete asset account statements. 

What are the biggest “hiccups” in a transaction?

  • borrowers need to continue providing paystubs and bank statements. Do not toss or shred anything that has to do with your assets or income.
  • large deposits (typically this is anything over $1000) must be documented…so if your Great Aunt Nelly is giving a wad a cash or a check for a birthday present at the time you’re getting ready to buy a home, keep documentation or proof of where the cash came from.
  • if you are planning on using 2012 income for qualifying, you need to file your 2012 tax returns as soon as possible. Lenders re-verify income (beyond W2s or 1040 – tax returns) with tax transcripts from the IRS via Form 4506. As we near “tax season” it takes the IRS longer to process and provide this information.
  • days prior to closing, employment is re-verified. If there are changes to employment or the employer is difficult to reach, this may cause a delay.
  • a “soft” credit pull is done prior to closing as well to make sure no new debts have been acquired by the buyer. If there are new debts, the buyer will need to be re-approved factoring in the debt payments.
  • If the credit report is getting ready to expire prior to closing, a new credit report will be obtained. This may have additional impacts to the transaction if there are changes to debts or credit scores. 

What is the BIGGEST issue with buying a home today in Seattle?  INVENTORY!  

This probably comes to no surprise to Seattle area home buyers in the $300,000 – $700,000 price range hoping to find a non-distressed home to make an offer on. 

If you have been considering selling your home, NOW could be an excellent time to consult with a real estate agent…and I’m happy to recommend one to you! 

As always, if you’re looking to buy a home or refinance your mortgage on a home located anywhere in Washington state, please contact me. I have been originating mortgages at Mortgage Master Service Corporation since April 2000 and I’m happy to help you!

Filed Under: Residential Purchase, Underwriting and Qualifying Tagged With: , , ,

A Strategy for Seattle Home Buyers: I Love Your Home Letters

January 12, 2013 by 2 Comments

The Wall Street Journal writes about a strategy home buyers in hot housing markets are using to get their offers accepted in hotter housing markets. From WSJ:

“In an echo of the last housing boom, ardent pitch letters from eager home buyers are popping up again in hot U.S. real-estate markets like Silicon Valley, Seattle, San Diego, suburban Chicago and Washington, D.C., housing economists and real-estate brokers say.

The heartfelt missives, often accompanied by personal photos, aim to create an emotional bond that can give their writers an edge—especially in situations where multiple bidders are vying for the same house. And the reappearance of buyer pitches, also known as love letters, offers further evidence that the housing market is rebounding after a five-year slump.”

I have written letters to underwriters before on behalf of my borrowers and have gone so far as to include a photo of my client which has helped with loan approvals. A letter from the buyer to “pitch” their story to the seller is something I haven’t heard of before.

What is probably more important than “a pitch letter” to the seller is your preapproval letter from a respected mortgage professional. A preapproval letter will assure the seller that you are approved for a mortgage specific to your offer and that the transaction should successfully close. A well written preapproval letter addresses the borrowers down payment, credit, income and employment have been verified. 

In a multiple offer situation (sometimes referred to as a “bidding war”) it’s not unusual for the seller’s real estate agent to call the mortgage originator who has written the preapproval letter to do a “sniff test”.  

While a letter from a potential home buyer expressing how perfect the home is for their family may give a buyer an edge over other offers, please don’t forget your mortgage preapproval letter.

If you are considering buying a home in Seattle or anywhere in Washington state, where I am licensed, please contact me. I would love to help you with your mortgage!

Filed Under: Featured, Residential Purchase Tagged With: , , , , , , ,
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