Ready to make an offer on that dream lake home or cabin?
A preapproval letter from your mortgage lender can be an important tool to strengthen your negotiating power. Sellers and listing agents tend to take offers more seriously when the buyer has been preapproved.
When you have found your dream home, and you are ready to make an offer, submitting a preapproval letter with the offer says you are a serious and committed buyer.
A preapproval letter is based on a preliminary review of your credit information and preapproves you up to a maximum loan amount. Because a preapproval includes a credit check, it’s more powerful than a prequalification letter, which only estimates your potential buying power.
With a preapproval letter, you can confidently shop for a home in your price range, and you are in a position to negotiate an offer – especially when there are multiple offers for the home you want.
As you prepare to make one of the biggest purchases of your life, a preapproval can ensure that you are in a loan program that meets your needs. Call Jean Hedren, Your Edina Realty NW Wisconsin Realtor at 218-590-6634. Start your property search: www.JeanHedren.com
Your mortgage loan consultant will be able to discuss the best mortgage loan program for you. Basically all mortgage loans belong to two main groups: conventional and government.
Two types of conventional loans:
Fixed rate: Traditional type of financing. The interest stays the same for the full term of the loan, typically 15 or 30 years with predictable and stable payments.
Adjustable rate: An adjustable rate mortgage (ARM) interest is linked to a financial index, such as a treasury security, so the monthly payment can vary over the life of the loan, usually 25 to 30 years. There are lower initial payments. Some ARMs can be converted to fixed rates generally after the first 5 years.
FHA loans, which are insured by the Federal Housing Administration, are typically designed to meet the needs of first-time homebuyers with low or moderate incomes. FHA loans can be approved with a down payment as little as 3.5 percent and a credit score as low as 580.
Often called “helper loans,” they give a boost to potential borrowers who may not be able to secure one otherwise. For this reason, FHA loans have maximum lending limits. Talk with your lender to see what the FHA loan limits are in the counties where you are searching.
And remember, because the agency is taking on more risk by insuring FHA loans, the borrower is expected to pay mortgage insurance both at the time of closing and on a monthly basis, and the property must be owner-occupied.
VA loans, backed by the Department of Veterans Affairs, are guaranteed to qualified veterans and active-duty personnel and their spouses. VA loans can be approved with 100 percent financing, meaning VA borrowers are not required to make a down payment.Unlike FHA loans, borrowers do not have to pay mortgage insurance on VA loans.
USDA loans, backed by the United States Department of Agriculture mortgage program, are intended to support homeowners who purchase homes in rural and some suburban areas. USDA loans do not require a down payment and may offer lower interest rates; borrowers may have to pay a small mortgage insurance premium in order to offset the lender’s risk.
WHEDA: Low down payments and below-market interest rates. Interest rate is fixed for 15 to 30 year loan term.
Ready to enter the buyer’s market?
Need help financing a new property? Understanding the loan types is step one, but you’ll need the help of a qualified expert to get you into your dream home.
More than half of home buyers don’t shop to find the best interest rate or loan program for their home purchase.
Generally a buyer would rarely purchase the first home they look at, they often accept the rate and terms offered by only one lender. Not all lenders are the same. They don’t offer the same terms and rates to the same buyer.
I advise my buyers that shopping around to compare rate and terms for a mortgage is a reasonable exercise considering that a half percent less interest rate could not only lower the payment but the cumulative interest that is paid throughout the life of the loan.
Mortgages consist of more than interest rates. They include the rate plus origination fees and discount points, which are prepaid interest assessed by the lender at settlement. Other considerations might include adjustable vs fixed-rate loans, low down payment vs high down payment, and whether there are prepayment penalties.
Most important, you will want to work with a lender you can trust, someone that will work effectively, and a lender that offers a range of mortgage loan options.
Make a list of lenders. Your Realtor will know several area lenders and can provide you with a list of contacts.
Talk to a loan officer. Call or visit the lenders on your list to learn how they might work with you. Ask questions:
What types of loan products are offered?
What are the rates, points, rate-lock period?
What are the closing costs?
How long is the mortgage application process?
When will I know if I’ve been approved?
What documents do I need to provide?
What costs am I expected to pay?
Is there an application deposit?
Compare rates with other lenders. When comparing rates with other lenders, be sure the rates are for comparable loans.
Home buyers: Don’t be stressed about what happens between mortgage loan application and before final loan commitment
For many home buyers, the time between submission of loan application and lender’s loan commitment can be one of uncertainty and stress.
Understanding the process can help to reduce the stress. During this time, be available if the lender needs more information during the processing period. Your quick response to requests helps to keep the process moving on schedule.
After your loan application is completed, your lender will begin to verify all the information you’ve provided which can take from 1-6 weeks depending on the type of mortgage program, where the home is located, and other factors. Your loan officer can give you an idea of the timeframe.
Within 3 days of completing the application, your lender must give you an estimate of your closing costs which will include origination fees, mortgage insurance, title insurance, and other fees. You’ll also receive a statement of your estimated monthly payment. The total cost of all finance charges is shown stated as an Annual Percentage Rate (APR). The APR is the dollar amount of finance charges you pay either up front or over the life of the loan.
After the lender approves the loan, you will receive a commitment letter stating the terms of the loan. Be sure to carefully read the letter and understand the conditions you will have to satisfy.
Once the commitment letter has been received you are ready to finalize the details required for the closing.
After choosing your Realtor, and before shopping for a home, choose a lender and get preapproved for a loan.
Remember, getting preapproved is based on a preliminary review of your credit information and preapproves you up to a maximum loan amount. Because a preapproval includes a credit check, it’s more powerful than prequalification, which only estimates your potential buying power. Getting preapproved first will help you to focus your search for homes that fit your price range.
Once you have an accepted offer to purchase a home, the next step is to set up a loan application meeting with your lender. You will complete the loan application form which asks for information on the property you are buying, terms of the purchase contract, and your employment and financial history.
Your lender can provide you in advance with a list of documents you will need. Typically, documents include pay stubs, W2 forms, federal tax returns from the past 2-3 years, bank statements, and credit card and auto loan debt information.
Once you have completed the loan application, your loan officer gives your file to the loan processing department when information is verified and checked. Then goes to the underwriting stage, where the decision to approve is made.
Once there is final loan approval, it moves to the final step in the process: the closing. Documents are signed, fees paid, and title is transferred. At the closing, the house and mortgage are yours.