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 be completed in no more than thirty minutes.
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 Individual Tax Return with all supporting schedules for those self-employed.
- Copies for one month of pay stubs.
- Bank statements providing evidence of liquid assets or other asset statements, e.g. money market funds or investment accounts. Statements should be the most recent available, please include all pages of the bank statements.
Credit Score/Credit History
Credit scores are a critical component to obtaining a competitive mortgage rate. If you feel your credit score does not reflect your good payment history or is damaged by inaccurate reporting there are solutions. Acadia Mortgage has resources to help you obtain an improved credit score. Please contact us for more information at 215-348-1460.
Credit scores range from a low of 350 to a high of 850. The score most 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 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 borrower's income, the amount of the down payment, and credit history are all components of the approval process.
Once we have income, credit history and the amount that's available for a down payment and settlement costs we will 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 for which you can be approved. It is important that you are comfortable with the resulting payment.
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. First, closing costs are those expenses/costs that are paid only once at closing. Pre-paids are recurring costs that are paid throughout the life of the loan.
Settlement Costs include the following fees:
- Closing Costs:
- Appraisal
- Credit Report
- Title Insurance
- Endorsements
- Tax Service Fee
- Notary Fee
- Underwriting Fee
- PA Transfer Tax (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 $275,000. Real Estate Taxes are $3,800:
- Closing Costs:
- Appraisal - $375.00
- Title Insurance - $2,022.50
- Credit Report - $85.00
- Endorsements - $150 (3 x $50.00)
- Tax Service Fee- $100.00
- Notary Fee - $40.00
- Underwriting Fee- $375.00
- PA Transfer Tax - $2,750.00*
- Processing Fee- $375.00
- Recording Fee - $260.00
- Flood Certification - $9.00
*For a house purchased in Philadelphia County the transfer tax is an additional 3% for a total of 4%. It is usually split between the buyer and seller.
Total Closing Costs:
Prepaid Expenses: following the same example as above. The loan amount is $220,000 with an Interest Rate of 4.75% on a 30 Year Fixed Rate mortgage.
- Prepaid Expenses:
- 12 months of taxes - $3,800.00*
- 10 days of interest - $104.11
- Insurance Premium 1st Year - $900.00**
- 2 months of homeowners insurance - $150.00
*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.
**This Insurance Premium is an estimate. Homeowners Insurance varies depending on price and location of your home.
Total Prepaids: $4,954.11
Total Settlement Costs are:
Closing Cost Total: - $6,541.50
Prepaid Expenses: - $4,954.11
Total Settlement Costs: - $11,495.61
