Pre-Approval: Your First Step to Home Ownership
What is Pre-Approval?
Pre-approval is the preliminary step in your journey towards home ownership. It involves a thorough financial screening process to establish how much you can borrow and which loan programs may be a good fit for you. Having a good credit score and fulfilling other essential criteria are key components in securing a favorable pre-approval.
Why Get Pre-Approved Before Looking at Homes?
- Knowledge is Power: Knowing your financial capabilities beforehand helps you focus your home search in the right price range.
- Earnest Money Safety: Avoid risking your earnest money on a home you may not be able to afford.
- Realtor & Seller Requirements: Most top realtors and sellers require a pre-approval letter before taking your offer seriously.
- Credit Health: Pre-approval helps identify any red flags in your credit history, giving you time to address them before diving into contracts.
Essential Documents for Pre-Approval
Your lender should review a comprehensive set of documents to give you the best chances for loan approval:
- Credit reports from all three bureaus
- Last 2 years' tax returns (Federal)
- W2's from the last 2 years
- Most recent 2 pay stubs
- Last 2 months' bank statements
- And other critical questions related to your financial status
What Does it Cost?
While some lenders might charge a fee for the pre-approval process, I can guide you through this journey at no additional cost.
Minimum Down Payments
Contrary to popular belief, a 20% down payment is not universally required. In fact, certain loan programs allow for much lower down payments—sometimes even zero.
Customized Loan Programs
Every individual's financial situation is unique, which means one loan program will not fit all. Together, we'll explore all options tailored to your specific needs and financial profile.
Understanding Monthly Payments
Your monthly payment consists of more than just the loan's principal and interest. Factor in homeowner's insurance, property taxes, and possibly mortgage insurance and HOA fees, depending on your property type and down payment.
Additional Considerations
- Earnest Money: Typically 1% of the purchase price.
- Closing Period: Approximately 30 days after your offer gets accepted.
- Closing Costs: Assess if you need the seller to cover any of these costs but they typically range in the 2% mark.
Interest Rate Locks
Once under contract, you can lock in your interest rate, generally for a 30-60-day period.
Getting Started
- Contact Sam Bromley at 719-347-1794 for a personalized consultation.
- Gather all necessary financial documents.
- Assess your budget limitations and comfort level with potential monthly payments.
Loan Matrix
In the quest for the right loan, consider various loan options such as Conventional, FHA, VA, and USDA/Rural Housing. Each has its own set of criteria, maximum seller contributions, and other variables affecting the rates and fees. Understanding your options can help you make an educated decision tailored to your individual circumstances. See below a loan comparison chart for easy reference.
| Criteria | Conventional | FHA | VA | USDA/Rural Housing |
|---|---|---|---|---|
| Min. Down Payment | 3% or 5% | 3.50% | 0% | 0% |
| Max. Seller Contributions | 3% for primary, 2% for investment | 6% | 4% | 6% |
| Investment Property/2nd Home | Yes | No | No | No |
| Up Front Funding Fee | Zero | 1.75% | 2.3% | 1% |
| Monthly Mortgage Insurance (PMI) | Required when less than 20% down | For life of loan | None | Life of Loan |
| Mortgage Insurance Percent | .375% - 1.2% | 0.85% | None | 0.35% |
| Income Limitations | None | None | None | 90k-120k |
| Location Limitations | None | None | None | Must be rural area |
| Maximum Loan Amount | Varies by county | Varies by county | None | Follows conventional |
| Credit's Effect on Rate | Significant | Moderate | Moderate | Moderate |
| Allows Premium Pricing to Cover Closing Costs | Yes | Yes | Yes | Yes |
| Option to Buy Out PMI | Yes | No | N/A | No |
| Interest Rates | Typically higher | Usually lower | Usually lower | Usually lower |
| Notes on Jobs | Best for those with job gaps | 6 months job gap needs 6 months current job history | Prefers 12 months on current job | Letter needed for gaps over 30 days |
| Significant Derogatory Credit Wait Times | Varies (4 yrs for Chapter 7 bankruptcy, 7 yrs for foreclosure) | 2 yrs for Chapter 7, 3 yrs for foreclosure | 2 yrs for Chapter 7, 2 yrs for foreclosure | 3 yrs for Chapter 7, 3 yrs for foreclosure |
|
||||||||||||||||||||||
Categories
Recent Posts
