Getting ready to make an offer when the time comes - Mortgage 101

One of the first things you want to do before looking for a home is asking your bank and other mortgage brokers about the rates they offer,  a pre-qualification letter is important if you want to make an offer and finally a pre-approval letter so that your offer is made formal.

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  • Pre-approval- Full review of income/asset documents plus a full credit report review. This is all done by the mortgage banker or mortgage broker who has no authority to approve the loan and is not an underwriter. – You will need a pre-approval letter to make an offer on a home. It’s important to have it ready.

  • Credit Approval (Commitment Prior to Contract)- All income and assets documents plus credit report is fully reviewed by an underwriter who has full authority to provide not only an approval but also a fully underwritten commitment letter. At this point all that is needed to close is a fully executed contract, appraisal and title report. There are no fees or obligations for this, and you can obtain this commitment within 3 days. – This is usually done after you have an accepted offer and a contract has been fully executed.

 

You can obtain this from any lender including your bank and close with another lender if a better deal (rate) is presented to you!

Credit ratings are important for the banker to give you a commitment letter - How to protect yours:

  • Pay on time and do not run up balances as a second credit report could be needed if 60-90 days passes.

  • Don't open any new accounts as additional monthly obligations could damage your ability to qualify.

  • Don't close any accounts as credit can drop when closing accounts.

  • Paying off debt within 2 months will not help

  • If you know if any open judgements or collections make sure to fix (deleted) or pay them off as it is a standard requirement everywhere.

  • If you need a JUMBO loan, which is a common loan in Westchester, most lenders require 3-4 open tradelines for more than 2 years and active within the latest 1 years

What NOT to do between approval and closing:

  • Do not open any new trade-lines (car, credit, another home): If one is opened, you will then need a statement reflecting the terms of repayment. Additional liability can damage your ability to qualify.

  • Do not move any cash into an account as cash is not allowed to be used

  • Do not Change jobs

  • Never miss a mortgage payment (most lenders will not approve a loan with 1 MTG late payment

  • Do not Change Compensation structure (salary to self-employed, higher bonus less income, etc.)

  • Be very careful of the movement of funds. If you will be receiving funds not related to a client's typical income your clients must make sure to let the lender know the best way for it to be received.

 

Timing

 

  • Start early collecting 2 years of tax returns, 2 months of bank statements and 30 days of pay stubs

  • Once the process has started, keep the lender updated with new pay stubs or bank statements as they arise. If any of the bank statements reflect deposits not related to income must be sourced and seasoned. It's always best to move funds sooner than later as documenting the movements can be time consuming.

  • Cooperate with any lenders request's immediately

  • Figure out who you plan to use as far as an attorney and homeowners insurance (I will give you a full list of well known, recommended attorneys and insurers…)

Rate Locks

 

  • Done at the borrowers discretion

  • Market moves constantly so ask for updated quotes daily

  • Rate locks can be renegotiated should rates drop (small movements in rate may not be acceptable to renegotiate)

  • Length of rate lock highly impacts the rates or fees offered

  • Not closing within the rate lock deadline can have a major effect on fees or rates offered

Pre-qualification vs. Pre-approval vs. Credit Approval:

  • Pre-qualification- Phone call application which is sometimes accompanied by a full credit report review. This is all done by the mortgage banker or mortgage broker who has no authority to approve the loan and is not an underwriter. – This will tell you how much you can spend on a home, how much you want to have in property taxes and your estimated monthly payment, plus It will give you a sense of the rates each banker can offer.