Helping Washington State homeowners learn more about their mortgage options.
My clients and readers ask such great questions…I just received this one from one of my clients that I’ve been working with since June of this year:
“…with all the rate changes how is our pre-approval looking? It the original amount still applicable?”
Yesterday I was interviewed by Melinda Fulmer for a MSN Real Estate article. Here were a few of my pointers (with some clarification) for buyers:
1. Plan on having a down payment. FHA allows for a reduced down payment which can be gifted or loaned by family members, as does USDA and VA. However I do like to see those shy on savings practice making mortgage payments to a savings account until they have at least 6 months of mortgage payments “in reserves”. This account is not to be used for your down payment–it’s in case of an emergency.
2. Be picky when selecting your loan originator. I do believe in getting referrals from people you financially respect. You can also try “googling” their names to learn more about the loan originator and their qualifications.
Borrowers may be better off working with loan originators who have are able to provide FHA loans–even if they’re not considering FHA financing. Many conventional loans are having to switch to FHA financing as the underwriting is more forgiving and rates may be better depending on mid-credit scores.
3. Get prequalified as soon as possible. This is a good way to get to select your loan originator (this is not the same as a preapproval). During this stage, you’ll be able to see how detailed oriented the LO is what their personality is like–what type of programs do they recommend. A LO should provide you a Good Faith Estimate without any commitment from you.
4. Rate lock strategy. Ask your LO what they can do if rates improve after you lock. Right now, with the turbulent markets, many lenders are offering free rate float downs as long as the lock meets specific criteria. This provides borrowers with the assurance that the rate will not be higher than the current rate lock and that should rates improve, they may have the opportunity to “float down” to that rate. Do make sure to obtain a written lock confirmation.
For sellers, I suggest that they insist on a preapproval letter to be included with their offer. They should also carefully read the letter, it should address the buyer’s credit, income/employment and where the down payment is coming from along with the type of loan they’re approved for. Preapproval letters are sadly not worth more than the paper they’re written on, however they can provide you with some clues about the lender the buyer is working with. If a seller has two identical offers, the buyer’s lender can make a huge difference in whether or not the transaction closes smoothly.
I have a couple of clients who did not feel like “winners” having banks compete for them via Lending Tree. Recently, I helped a family by closing their purchase in 5 days…the lender they obtained from Lending Tree did not perform after having their loan for over 30 days. Here are a few nice words from my new clients:
I’m noticing more contingent offers lately. This is when someone makes an offer to purchase their next home and the offer is contingent on the successful closing of their current residence. Contingent transactions may occur for several reasons:
In fact, I just had an excellent question from one of my clients that is worthy of sharing with you:
“Since our purchase is contingent on sale of existing property, when does the loan actually close and what are our liabilities in the event our home fails to sell? The only other time I bought a house there wasn’t the issue of selling one so it never came up for me.”
With this scenario, without a bridge loan to tap into the equity of the former home, the loan on the new home will not be able to close until the old home is closed. This is because the proceeds of the old home are needed for the down payment on the new home. This typically takes place the same day, however, I recommend having the closing take place the day after the day after the old home closes, if possible, to allow for transfer of funds. This is referred to as a simultaneous closing.
A bridge loan allows you to close on your new home quicker, without waiting for the old property to sell and close. Knowing your closing date, also enables you to secure your interest rate by being able to lock your loan. A home equity loan on the current residence is also a possibility. However, the advantage with the bridge loan is that there are no monthly payments due (interest is deferred until the home is sold).
Check with your Real Estate Agent to see what your liabilities may be if your home does not sell. There should be an addendum to the purchase and sale agreement addressing what happens if your home does not sell. The purchase and sale agreement may also address when the closing date will be on your new home (for example, “x” days after the closing of your old home) and what happens if someone else makes an offer on the home you’re buying “non-contingent” (without having to sell their home to close on the new home)…also referred to as being “bumped”.
People buy homes contingent all the time. It’s important to have an understanding of the process, what your options are and to have a game plan in the event of a “bump” so you can be ready with your ducks in a row!
UPDATE 2012: We currently do not have bridge loans available as of 4/20/2012.
If you would like me to review your current scenario to help you be preapproved for your home purchase anywhere in Washington state, please contact me.
Last fall, a Mom made an appointment with me to meet with her childre
n about buying a home. It was so cool. First off, she was very proud of her 18 and 20 year olds. Both were hard working individuals…being responsible young adults. Mom thought they should look at buying a house together instead of renting. It was a very interesting consultatation. I was happy to meet with this family to help make sure her young adults are on the right track of becoming home owners and mortgage payers.
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):
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”). In addition, a Good Faith Estimate does not constitute a preapproval, it does detail the proposed loan scenario.
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 for 90 days a specific amount of days, typically when most lenders consider the credit report “expired”. 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.
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.
If you’re considering purchasing a home located anywhere in Washington state and need a preapproval letter, I’m happy to help you!
EDITORS NOTE: This post has been updated since credit reports are no longer “valid” for 90 days with most lenders.
Rhonda Porter is a Licensed Mortgage Originator MLO121324 living in the greater Seattle area. Rhonda began her career in 1986 in the title and escrow industry and began her mortgage career in 2000. She enjoys helping people understand the mortgage process and started writing The Mortgage Porter in late 2006. Read More…
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