Why do I need a pre-approval letter before looking at homes?
When prospective home buyers need mortgage financing, we ask them to meet with their mortgage lender to obtain pre-approval as one of the initial steps in the home purchase process. The housing inventory is very low in the area and multiple contract competition should be anticipated by home buyers and real estate investors. Purchasers need to be comfortable when they need to make quick decisions in this fast moving market.
For many home buyers, the maximum mortgage amount for which they will qualify will determine the price range for the home search. It is fine to look at less expensive houses, but it is not productive to be considering homes that are beyond the means of the buyers.
The maximum price is important to know but there are other elements of mortgage financing that will impact purchase decisions. The amount of available cash may determine the type of financing. Buyers need to have funds for the required down payment, the closing costs, the cost of moving and the cost of any need improvements that will be made before the move. If there is a requirement for the sellers to pay part of the closing costs, that information needs to be included in the purchase contract.
Some home buyers may need to use FHA financing with a small down payment or VA financing with no down payment while other buyers may have the larger amount of funds needed for most conventional mortgage products. The type of needed financing should be determined in advance. Some conventional loan products require mortgage insurance and other products require no mortgage insurance. Most buyers need some front end advice from their lender.
The term of the mortgage loan should also be established according to the needs of the prospective borrowers. Very large amounts of interest can be saved for those that can handle a 15 or 20 year loan rather than the typical 30 year mortgage. Some buyers should consider adjustable rate mortgages while others should use long term fixed rate mortgages. An experienced loan officer can help with the decision.
Some home buyers want to purchase a fix up property. When renovation financing is going to be needed, the purchasers should know what financing will be needed. The most popular renovation financing in our market is the FHA 203(k) program but it is not offered by all of the mortgage lenders.
The interest rate is also a major factor in the cost of financing. And, the interest rates will vary depending on the program that is selected. There is much to be considered when planning the mortgage financing and the pre-approval process takes some time. The credit must be checked and the documentation must be verified.
Some seniors may wish to consider a reverse mortgage. With a reverse mortgage, there are no mortgage payments for life. The borrowers are still required to cover the costs of home maintenance, insurance, HOA or condo fees and local real estate taxes.
Prospective home buyers should take the advice of their buyer agent and get pre-approved on the front end of the purchase process. When needed, we are always willing to recommend loan officers and lenders.
Kentlands, Spring Flowers IMG_9173
Photograph by Roy Kelley using a Canon PowerShot G11 camera.
Roy and Dolores Kelley Photographs
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