Step 2 to Buying a Home: Get Pre-Approved For a Mortgage

Once you’ve found a Realtor to represent and advise you on what is going to be the biggest financial transaction you ever make, step 2 to buying a home is to get pre-approved by a mortgage lender. As a Realtor, I won’t put an offer in on a home for a client unless he or she has been pre-approved. In addition, 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 taxes, etc.  Here’s a great resource that demystifies the mortgage process which I highly recommend all buyers read before applying for a mortgage.

Having a good mortgage lender is a crucial part of ensuring a smooth transaction.  Working with a bad mortgage lender can make the process unpleasant for everyone involved and put your purchase in jeopardy of not closing on time or at all.  You also might end up regretting the lender you chose for years if you end up paying a higher interest rate than you should have if 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.  I recommend:

Recommended Lenders

Paperwork You Need To Gather

Each lender has slightly different requirements regarding what documentation they need from you for the pre-approval process, but in general, expect to provide the following items:

• A completed application. The lender will provide this to you directly
• The two most recent months (or a quarterly statement) of any asset information listed on the application.  Generally: checking, savings, 401k, mutual funds, individual stock accounts, IRA’s, etc.
• Most recent paystub
• W2 for past two years
• US Tax Return for past two years
• Corporate Tax Returns for past two years (if self-employed and you own over 25% of the company)

Getting a Pre-Approval Letter 

Generally, once you submit the above items to your lender you should receive a pre-approval letter within 2-3 business days.  The lender may ask for additional documentation.  They are not trying to be difficult by asking for additional documentation, rather, after the housing bubble burst, underwriters became much stricter regarding the loan approval process so 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 to in terms of a monthly mortgage payment plus any PMI, taxes, and insurance. That way you can 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 when we are ready to submit an offer.

Ask About Free Money

Tennessee offers several grant programs for home buyers where the state of TN will literally give you free money to put towards your down payment or closing costs.  Talk with your mortgage lender to see if you qualify for any of these programs.

Get a Loan Estimate and Understand Your Closing Costs

In addition, mortgage lenders are 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 on top of your down payment and shows exactly what fees the mortgage lender is charging you.  Make sure you understand these fees. Generally, closing costs are estimated to be approximately 2.5% of the purchase price of the property.  Your mortgage lender can provide you with more detailed estimates based on your exact pre-approval price. 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.  Therefore, if you’re buying a $500,000 property and putting down 20% towards the loan you’ll need to have $112,500 cash available at closing ($100,000 for your down payment and approximately $12,500 for the closing costs).  

Should You Shop Your Loan Around?

Absolutely. Every lender charges different fees and different interest rates so you should speak with at least two lenders, in my opinion.  Know your credit score and share this with the lender as your credit score does affect your interest rate.

Any questions, please call or email Virginia at (615) 618-9966 or vrogan@villageTN.com.