Step 1: Get Pre-Approved for a mortgage
Step 1 and step 2 are interchangeable.
If you’ve found a Realtor to represent and advise you on what is going to be the biggest financial transaction you ever make, then the first thing they should do is introduce to a lender to get pre-approved. As Realtors, we won’t put an offer in on a home for a client unless he or she has been pre approved. In addition, it’s important that you understand how much you can comfortably afford to spend on a home, what your monthly payments will be, what interest rate you qualify for, and how much you’ll be paying each month in taxes, etc.
Having a good mortgage lender is a crucial part of ensuring a smooth transaction. Working with a bad mortgage lender can make the process a living hell for everyone involved and put your purchase in jeopardy of not closing on time or at all. You also might end up regretting the lender you chose for years to come if you end up paying a higher interest rate than you would have, if you had shopped your loan through various lenders. You could also lose out on your dream property because your mortgage lender was disorganized and couldn’t get you fully approved during underwriting, etc. That’s why it’s important to work with the best.
My Recommended Lenders:
JOHN CLARK: I have known John for more than twenty years, in that time he has done many loans, including for my wife and I. John is particularly adept at first time buyer programs, an area that few lenders have the patience for.
Key Financial Services
Direct Line: 626-204-2348
JULIE ARAGON: I have never actually met Julie, but if you like working with someone electronically, she's your person. Our transactions have always been smooth and efficient.
New Penn Financial
Direct Line: 310-488-7083
CARLOS LAMPERT SALINAS: Carlos has lived in several places around the world and speaks several languages, he is the in-house lender at the new Wells Fargo branch in La Crescenta.
Wells Fargo Home Mortgage
KAL BALIAN ANTOUN: At the end of 2016 Kal did a loan for the buyer on one of my listings that I thought could not be done, seriously impressed.
Caliber Home Loans
Paperwork You Need To Gather
Later in this document, you will find a list of Papers You Need to Collect for The Lender. Each lender has slightly different requirements regarding what documentation they need from you for the preapproval process, but in general they will expect you to provide the following items:
- A completed application. The lender will provide this to you directly
- Most recent two months’ paystubs
- Past two years’ worth of W2’s.
- They might also want the past two years’ worth of US Tax Returns
- The two most recent months (or a quarterly statement) of any assets listed on the application. Generally: checking, savings, 401k, mutual funds, individual stock accounts, IRA’s, etc.
Getting a Pre-Approval Letter
Generally, once you submit the above items to your lender you should receive a pre-approval letter within 2-3 business days. The lender may ask for additional documentation. They are not trying to be difficult by asking for additional documentation, rather, after the housing bubble burst, underwriters became much stricter regarding the loan approval process so a lot more documentation is needed today than it was 10 years ago. In addition to receiving a pre-approval letter which shows the amount you can afford to purchase, you should ask your lender to show you what that preapproval amounts into in terms of a monthly mortgage payment plus any PMI, taxes, and insurance. That way you can make sure you are comfortable with what your monthly housing payment will be at that pre-approval letter. Once you’ve received your pre-approval letter, forward it to us for your file so we can have it when we are ready to submit an offer.
Ask About Free Money
California has a mind-numbing array of programs for home buyers, some will come up with money to put towards your down payment or closing costs, others will help with ‘silent seconds’ or other down payment assistance. Your lender should have information on these programs. The California Association of Realtors also has a tool to identify available programs, be sure to ask me about this.
Get a Loan Estimate and Understand Your Closing Costs
Mortgage lenders are required to provide you with a Loan Estimate (LE) within 3 days of receiving your pre-approval. The LE provides an estimate of the closing costs you’ll need on top of your down payment and shows exactly what fees the mortgage lender is charging you. Make sure you understand these fees. Generally, we estimate closing costs to be approximately 2.5% of the purchase price of the property. Here is a chart showing approximate closing costs in Chicago. Your mortgage lender can provide you with more detailed estimates based on your exact pre-approval price. Remember, these closing costs are due at closing (except for the appraisal and inspection fees which are due on the day those services occur) and are on top of your down payment. Therefore, if you’re buying a $500,000 property and putting down 20% towards the loan you’ll need to have $112,500 cash available at closing ($100,000 for your down payment and approximately $12,500 for the closing costs).
Should You Shop Your Loan Around?
Absolutely. However, you need to be aware that with the secondary market system we have, all lenders are essentially lending the same money. In my experience if you talk to half a dozen lenders, five will be very similar and the one that I have found to be deeply suspicious is the one who quotes a price dramatically better than the others.
Another thing to bear in mind, is that the home buying process is going to be a stressful time, choose the lender who you feel comfortable with. You will thank me when the going gets tough. Also, get a couple of references. Some loan officers have earned the reputation of mysteriously failing to answer the phone at the worst possible moment. Trust me, you don’t want to be working with that person!
If you have Questions about the pre-approval process, don’t hesitate to call me at 626-354-8000.
Go to Step 2 to Buying a Home: Find a Realtor