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Giving A Pre-Approval Letter To A Real Estate Agent

Mortgage-Pre-Approval-LetterGiving a Pre-Approval Letter to a Real Estate Agent

While many experienced real estate agents in Cape Cod have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.

With today’s volatile lending environment, it’s smart to meet with an approved Massachusetts mortgage professional to fully discus your lending scenario prior to investing much time previewing available listings with a local real estate agent in Cape Cod.

Why A Pre-Approval Letter Is Necessary

There are many reasons buyers needing mortgage financing should consider speaking with a mortgage professional prior to placing an offer on a new property. The most obvious reason is because most sellers prefer to negotiate with pre-approved homebuyers due to the fact that they are perceived as shoppers who are financially qualified with funds available if they choose to close the transaction.

However, for the benefit of the borrower, knowing exactly what you may qualify for will give you an opportunity to budget accordingly. Meeting with the bank up front will help uncover any potential challenges to the loan financing process which may take time to sort through and fix.

Besides the basic peace-of-mind for the agents, borrowers and sellers, there are many other details that the pre-approval process with help identify so that your agent knows exactly what type of purchase offer to write when you find that home to buy.

Here are a few of the details your real estate agent should pay attention to:

Property Type –

High-Rise, Condo, Town House, Single Family Residence, Dome Home or Shoe House… all have specific lending guidelines that can influence down payment, credit score and mortgage insurance requirements.

Residence Type –

Need to sell one home before moving into another? Is a property considered a second home if it’s in the same city? What if I’m buying a home for my children to live in, it is still considered an investment property?

These are just a few of several possible residence related questions that should be addressed by your agent and loan officer at the initial loan application.

Rates / Locks –

Mortgage Rates are typically locked for a 30 day period, and one of the only ways to get a new rate is to switch mortgage lenders. Rates also have certain adjustments for property / residence type, credit score and down payment which could have a big impact on monthly payments and therefore approvals.

A 1% increase in rate could literally mean the difference between an approval or denial.

Headline News / Employment –

Underwriters watch the news as well. Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure.

Job changes, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.

Title / Property Flip –

A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period. Generally, an investor will do a little rehab work, fresh paint, landscaping…. and try to re-sell the property for a significant profit margin.

While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.

These rules change frequently, and are specific to particular property types, so make sure your agent is aware of all the boundaries associated with your approval letter.

Homeowner’s Association Insurance –

Some lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented.

It may also take a few weeks and cost up to $300 to receive an HOA Certification, so make sure your Due-Diligence period is set accordingly in the purchase contract.

Appraisal Ordering Procedures –

Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.

Unfortunately, some of the new appraisal regulations have proven to slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.

VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you’re approved for so that they document any anticipated delays in the purchase contract.

For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably is not wise to write a purchase contract with a four week close of escrow.

Frequently Asked Questions

Aside from questions that you may have on why giving a pre-apporval letter to a real estate agent before starting your homebuying process, here are a few common questions and answers below that may add to your list of collected information that we hope will help you with the rest of your mortgage needs.

  • Q

    What documents will I need to have on hand in order to receive a full mortgage approval?

    An experienced mortgage professional will be able to uncover any potential underwriting challenges up-front by simply asking the right questions during the initial application and interview process.

    Residence history, marital status, credit obligations, down payment seasoning, income and employment verifications are a few examples of topics that can lead to stacks of documentation required by an underwriter for a full approval.

    There is nothing worse than getting close to funding on a new home just to find out that your lender needs to verify something you weren’t prepared for.

  • Q

    Are my taxes and insurance included in the payment?

    This answer to this question affects how much your total monthly payment will be and the total amount you’ll have to bring to closing.

    If you include your taxes and insurance in your payment, you will have a higher monthly payment to the lender but then you also won’t have to worry about coming up with large sums of cash to pay the taxes when they are due.

  • Q

    Will my payment increase at any point after closing?

    Most borrowers today choose fixed interest rate loans, which basically means the loan payment will never increase over the life of the loan.

    However, if your taxes and insurance are included in your payment, you should anticipate that your total payment will change over time due to changes in your homeowner’s insurance premiums and property taxes.

  • Q

    How long will my rate be locked?

    Mortgage rates are typically priced with a 30 day lock, but you may choose to hold off temporarily if you’re purchasing a foreclosure or short sale.

    The way the lock term affects your pricing is as follows: The shorter the lock period, the lower the interest rate, and the longer the lock period the higher the interest rate.

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