Pre-Approval
Potential Buyers - Some buyers will want to know their purchasing power even before they decide on a realtor. We can help you accomplish this by providing you with a Pre-Approval.
Question - What is the pre-approval process and why do I need to be pre-approved?
Answer - This process is one in which you work with your mortgage lender and provide all of the necessary information needed to demonstrate that you have income, credit and assets necessary to purchase real estate. It is an interview (by phone or in-person) that can take up to thirty minutes, but often can be completed in twenty minutes.
Documents like your most recent W-2, current pay stubs and bank/investment account information is helpful to have during the interview but not necessary. Most, but not all realtors want their customers to be pre-approved before they will show properties to a prospective home buyer. This allows the buyers realtor know that you have the financial capacity and credit worthiness, to purchase a property that you are interested in seeing and/or making an offer.
When the buyer finds a property they are serious about purchasing, having a pre-approval letter in hand demonstrates to the listing agent and seller that the buyer is a bona fide purchaser and has the financial capacity to purchase the property they are making an offer on.
Documentation Requirements for Pre-Approval
- Previous years W-2 form for employed persons. U.S. 1040 Individiual Tax Return with all supporting schedules for self-employed persons.
- Copies of one month of pay stubs.
- Bank statements that provide evidence of liquid assets or other asset statements for money market funds or investment accounts. These statements should be the most recent available, including all the pages to the particular statement you are providing.
Credit History
Credit scores range form a low of 350 to a high of 850. The score must often associated with good credit is a threshold score of 680. It is important to keep in mind that a score below 680 will not necessarily by any measure prohibit you from obtaining what we consider an "A Paper" rate. There are a number of considerations that come into play when a loan is underwritten. A borrowers income, the amount of down payment, and credit history are all components of the approval process.
Once we have income, credit history and the amount you have available for a down payment and settlement costs we can got to work and underwrite your loan to determine your maximum purchasing power. It is important to keep in mind that you may not want to purchase at your maximum purchase price due to the payment that results from the amount that you can be approved. It is important that you are comfortable with the resulting payment for which you are responsible.
With your pre-approval in hand, you will be able to begin the house hunting process and be on your way to finding a home that best meets your needs and your budget.
Settlement
Settlement costs are separated into two groups of costs. First, closing costs are those expenses/costs that are paid only one time at closing. Pre-paids are recurring and are paid throughout the life of the loan.
Settlement Costs include the following fees:
- Closing Costs:
- Appraisal
- Title Insurance
- Credit Report
- Endorsements
- Tax Service Fee
- Notary Fee
- Underwriting Fee
- PA Transfer Fee (Purchase Only)
- Commitment Fee
- Recording Fee
- Flood Certification
- Pre-Paids:
- Interest paid to the end of the month of Closing
- Homeowner's Insurance Initial Policy
- Tax Escrows
- Insurance Escrows
Example of Closing Costs:
Below is an example of closing costs for the purchase of a home selling for $250,000. Real Estate Taxes are $2,750:
- Closing Costs:
- Appraisal - $275.00
- Title Insurance - $1,608.75
- Credit Report - $18.40
- Endorsements - $150 (3 x $50.00)
- Tax Service Fee- $75.00
- Notary Fee - $25.00
- Underwriting Fee- $200.00
- PA Transfer Tax - $2,500.00
- Commitment Fee- $300.00
- Recording Fee - $160.00
- Flood Certification - $25.00
Total Closing Costs:
Prepaid Expenses: following the same example as above. The loan amount is $200,000 with an Interest Rate of 6.5% on a 30 Year Fixed Rate mortgage.
- Prepaid Expenses:
- 12 months of taxes - $2,750.00*
- 10 days of interest - $361.11
- Insurance Premium 1st Year - $605.00
- 2 months of homeowners insurance - $108.33
*12 months of taxes is a combination of the escrows required to pay future tax bills plus, pro-rated taxes back to the seller for current taxes already paid by them in the current year.
Total Prepaids: $3,869.44
Total Settlement Costs are:
Closing Cost Total: - $5,337.15
Prepaid Expenses: - $3,869.44
Total Settlement Costs: - $9,206.59
