You’ve found a REALTOR® to represent and advise you on what is likely the largest financial transaction you ever make, so now, you’re on to the next step: getting pre-approved by a mortgage lender. A responsible, experienced REALTOR® won’t write an offer for a buyer on a home until that buyer has been pre-approved…and we are no exception to that rule.
Why? First, it’s important that you have an understanding of how much you can comfortably afford to spend on a home, what your monthly payments will be, what interest rate you qualify for, and how much you’ll be paying each month in mortgage payment and other fees, such as homeowner’s insurance and property taxes, etc. Only a reputable lender can truly answer those questions for you. Second, your offer will be taken more seriously and given sincere consideration by both the seller and their agent when accompanied by a pre-approval letter. Finally, our reputation as REALTORS® is directly linked to giving exemplary advice and representation to our clients and making sure you are protected every step of the way — this is one of the many ways that we work to protect you.
Why Is It Important For You To Speak With A Lender Right Now?
Having a knowledgeable, trustworthy, reputable mortgage lender is a crucial part of ensuring a smooth transaction. Working with a bad mortgage lender can make the entire process difficult for everyone involved and, more importantly, put your purchase in jeopardy of not closing on time or at all, which can lead to loss of your earnest money and all of the time and other money you’ve invested in the process. You also might end up regretting the lender you chose for years after your purchase if you end up paying a higher interest rate than you should have, if you paid higher fees that you should have, or if you lose out on a house and a large amount of money — if only you had shopped your loan through various lenders. You could also lose out on your dream property because your mortgage lender was disorganized and couldn’t get you fully approved during underwriting, etc. That’s why it’s important to work with the best. We recommend a number of lenders that not only our clients have used and had exemplary experiences with but we have also used personally ourselves, and we are happy to pass those names along to you.
What Paperwork Do You Need To Gather?
Each lender will have slightly different requirements regarding what documentation they need from you for the prequalification or pre-approval process (there is a difference between the two — click here to read more about the difference between prequalification and pre-approval with a lender). We know that your financial information feels very private, and it can be uncomfortable when we’re asked for some items, so we want you to know what you should expect to provide to a lender:
- A completed loan application. The lender will provide this to you directly, and every lender’s loan application will be different, depending on the institution they work for.
- Two most recent months (or a quarterly statement) of any asset information listed on the application. Generally, this will include: checking, savings, 401k, mutual funds, individual stock accounts, IRA’s, etc.
- Two recent months of a your paystubs
- Past two year’s worth of W2
- Past two year’s worth of Federal (and State, if applicable) tax returns
- Past two year’s worth of Corporate tax returns (if you’re self-employed and you own over 25% of the company)
When Will You Receive Your Prequalification or Pre-Approval Letter?
Once you submit the above items to your lender, you should expect to receive a pre-qualification letter within 2-3 business days; it may take a little longer if you are working on a pre-approval letter. Keep in mind that no two mortgage transactions are identical and a good lender will treat every potential borrower as a unique individual. The lender may ask for you additional documentation. Remember, as this can be frustrating sometimes, the lender is trying to serve you — the borrower — to their highest potential. They are not trying to be difficult; instead, they are highly aware that, following the burst of the housing bubble, underwriters have become much stricter regarding the loan approval process — therefore, a lot more documentation is needed today than it was 10 years ago.
In addition to receiving a pre-approval letter which shows the amount you can afford to purchase, you should ask your lender to show you what that pre-approval amounts into in terms of a monthly mortgage payment (principal and interest), plus any PMI (Private Mortgage Insurance), property taxes, and homeowner’s insurance. You need to make sure you are comfortable with what your monthly housing payment will be at that pre-approval letter. Once you’ve received your pre-approval letter, forward it to us for your file so we can have it ready to go when you find a house and we are ready to submit an offer.
Getting a Loan Estimate and Understanding Your Closing Costs
Mortgage lenders are also required to provide you with a Loan Estimate (LE) within 3 days of receiving your pre-approval. The LE provides an estimate of the closing costs you’ll need in addition to your down payment and shows exactly what fees the mortgage lender is charging you (their services, just like the loan itself, don’t come for free!). Make sure you understand these fees. In some cases, we may be able to negotiate for the seller to contribute to some of these fees on your behalf at closing, but these fees are a cost to you in your home purchase; you should enter into the transaction assuming that these will be yours (and yours alone) to pay for. In the event that we are able to get a seller to contribute, that’s just icing on the cake! Your mortgage lender should be able to provide you with more detailed estimates based on your exact pre-approval price (or estimates of price ranges). Remember, these closing costs are due at closing (except for the appraisal and inspection fees which are due on the day those services occur) and are on top of your down payment.
Should You Talk To More Than One Lender?
Definitely. Every lender is different — they charge different fees and offer different interest rates, so it’s crucial you shop your loan around to at least two lenders (in our opinion) — after all, you want to be able to secure the “cheapest” money. We recommend having the lenders all pull your credit on the same day, in order to keep the “hits” to your credit to a minimum. Each lender will need to pull your credit report in order to give you an accurate pre-qualification or pre-approval letter. If your credit is pulled by various lenders on the same day or within a few days, it will affect your credit a lot less than if you have it pulled by various lenders all at different times. Also, if you’re going to compare interest rates and fees, make sure you are comparing interest rates between lenders on the same day as rates vary, even over the course of the day. If you aren’t comparing interest rates on the same day, it’s like comparing apples to oranges.
Questions about the process of shopping for a lender? Just call us at 404.994-2181 or email us at Maura(at)BuySellLiveAtlanta(dot)com.