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.

[Read more…]

Filed Under: Residential Purchase Tagged With: , , ,

Is it necessary in Seattle to get preapproved to make an offer on a home?

May 10, 2013 by 1 Comment

Recently one of my out of state clients who is looking to buy an investment home in Seattle asked “Is it necessary in Seattle to get preapproved?”

The short answer: YES!  Unless you’re paying cash! And if you are paying cash, be prepared to show the listing agent and seller that you have proof of funds.

Redfin’s “Bidding War Report” reveals Seattle is the 5th most competitive housing markets in the nation with 74.6% of offers “facing competition” (multiple offers) last month.

With Seattle area home sellers having more than just one offer from potential home buyers to choose from, you must be preapproved by a reputable local lender. Listing agents will help the seller review the offers to determine which one is the best for their situation.

According to the Bidding War Report, if you’re buying a home in Seattle, you may want to consider getting your home inspection done BEFORE making your offer (aka a “pre-inspection”). Last month, 14.3% of “winning offers” on Seattle homes had pre-inspections and 19% waived their inspection contingency.

Pre-Inspect-to-Play: This 2-bedroom, 1-bath home in Seattle’s Phinney Ridge neighborhood had 300 showings, 19 pre-inspections (a competitive strategy common in Seattle in which the buyer has the home inspected before submitting an offer so that they can safely waive the inspection contingency), and more than 30 offers….

What did the “winning offers” have for financing in Seattle last month? 

  • 63.1% used conventional financing
  • 4.8% used FHA or VA financing
  • 2.4% paid cash

10.7% of “winning offers” waived their financing contingency.  17.9% of “winning offers” included a cover letter, or a “love letter” to the seller about why they want to buy their home.

This is great news for home owners who have been contemplating selling their home. Last night, King 5 aired this story about a couple from Seattle who sold their home in a matter of days for more than they expected with several strong offers to choose from. 

Rising home prices will also help home owners who have been waiting for their home values to go up so they can refinance (if they don’t already qualify for HARP or a FHA/VA streamline refi). 

ATTENTION HOME BUYERS is the greater Seattle area: you’ve got to get your game on if you want to “win” in a multiple offer situation! Be sure to get preapproved from a local trusted lender. Your preapproval letter needs to be strong enough to give the seller and listing agent confidence that you are the most qualified buyer with the highest odds of having the transaction close quickly and without issues. Here’s a list of what you’ll need in order to be truly preapproved…if you’re working with a lender who has not requested these items, you’re probably just prequalifed and there is a HUGE difference.  

If you are considering buying or refinancing a home located in Seattle or anywhere in Washington state, where I’m licensed, I am happy to help you! I have been helping home buyers with their mortgage needs at Mortgage Master Service Corporation for 13 years. Click here for a rate quote or contact me to start the preapproval process.

Filed Under: Real Estate, 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: , , , , , , ,

Are First Time Home Buyers Missing Out?

December 11, 2012 by Leave a Comment

A recent survey shows that those buying their first home are making up a smaller percentage of home buyers. From US News:

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, released last week, found that first-time home buyers were purchasing only 34.7 percent of the homes sold in October. That’s down from 37.1 percent in September, and is the lowest percentage ever recorded by the survey.

This decline surfaces as purchases of non-distressed homes—houses that are not in foreclosure—have increased dramatically in 2012. The report shows that the vast majority of the homes being sold are regular purchases—accounting for 64.7 percent of all houses sold in October, up from 55.7 percent in February. The increase is a sign of strength in the housing market, as fewer people are buying homes in foreclosure.

The article continues to speculate that part of the reason why first time home buyers are not participating as much as other buyers is partly due to tightening underwriting guidelines. If someone has been considering buying their first home, I highly recommend they get started with the pre-approval process early. 

Lenders want to avoid another mortgage meltdown and want to make sure that borrowers qualify for the new mortgage. That might sound like a silly or obvious comment, however during the “subprime era” many home buyers did not qualify for the mortgage. Ultimately, underwriting guidelines are intended to measure a borrowers capability to repay the mortgage and to not have the home become a “distressed property”. 

Underwriters are looking for a borrowers financial strengths and weaknesses when reviewing an application for a mortgage. In an article I wrote a few years ago, I compared this to a chair with each leg of a chair representing a financial quality that underwriters consider: credit, employment, income and assets.

First time home buyers don’t need to be discouraged, they do need to be prepared. Mortgage rates are extremely low making this a great opportunity to buy if one wants to.

I’ll share some tips on what first time home buyers can do in a follow-up post.

Stay tuned!

Filed Under: First Time Home Buyer, Residential Purchase Tagged With: , ,

How can a preapproval change?

September 14, 2012 by 2 Comments

MortgageWhen someone becomes “preapproved” for a mortgage, it boils down to they qualify for a certain mortgage payment based on their income and debts (DTI aka debt to income ratio).  A home buyer qualifies for the loan amount of the new mortgage and their funds available for down payment and closing cost determine the sales price.

[Read more…]

Filed Under: Residential Purchase Tagged With: , , ,

Survey Says!

July 10, 2012 by Leave a Comment

According to Fannie Mae’s Monthly National Housing Survey, many Americans believe that home prices are on the rise. If you are shopping for a home in the Seattle area, you probably know this to be true and may have experienced a bidding war or two.   

Housing_Survey
 

If you are considering taking advantage of today’s very low mortgage rates and home prices, it’s crucial that you get preapproved by a qualified local mortgage originator.

A preapproval means that you have provided your supporting income and asset documents to prove you have the ability to purchase the home. If you have not provided income and asset documents to your lender, you are most likely not “preapproved” and may only be “prequalified”.  

I’m happy to assist with the financing of your home located anywhere in Washington state.  It all starts with a review of your financial scenario – click here to start the application process.

Filed Under: Residential Purchase Tagged With:

More Listing Agents Performing “Sniff Test” on Mortgage Originators

May 21, 2012 by Leave a Comment

IStock_000019730096XSmallI’m noticing that more listing agents are performing, what I like to call, “sniff test” to check out the lender who has prepared the preapproval letter. By the way, I think this is an excellent idea. This is especially true if the listing agent is reviewing multiple offers, which is happening more in the greater Seattle area with non-distressed homes that are desirable and priced right.

The sniff test is typically a phone call by the listing agent so they can get an idea about the mortgage originator. The listing agent should not ask personal information about the potential home buyer (such as credit scores or available funds). 

When a listing agent contacts me, I know they’re sizing up:


  • how quickly I returned their phone call or email
  • how experienced I am at closing my clients specific mortgage program (for example, Fannie Mae Homepath, Freddie Mac Homesteps or FHA transactions)
  • how long I’ve been in the mortgage industry (over 12 years at Mortgage Master Service Corporation)
  • how quickly we can close by
  • to learn more about our company (family owned and operated since 1976)

I’ve heard from many local real estate agents that they need to make sure the loan can actually close. Often times, a preapproval letter may not be worth more than the paper it’s written on if the mortgage originator has not done their homework with the actual preapproval.  NOTE: you are NOT preapproved unless you have provided your mortgage originator your income and asset documentation. 

I wrote about “investigating your preapproval letter” many years ago at Rain City Guide. The issue with preapproval letters then was probably that anybody and their brother was a mortgage originator back in 2007. Now there are far less mortgage originators however, if the mortgage originator works at a bank or credit union, they may still lack experience (they’re not required to be licensed). A licensed mortgage originator may be new to the industry as well. Some large internet mortgage companies have been hiring LO’s who can pass the national exam but still lack experience. There’s a big difference between being a good a passing exams and successfully closing loans.

While the number of mortgage originators is dramatically down, it’s still important to make sure your mortgage originator has the capability to see your transaction to closing. It may be a consideration to make sure your mortgage originator can pass a sniff test.

Filed Under: Real Estate Agents, Residential Purchase Tagged With: , ,
« Previous Page
Next Page »