Sunday, January 1, 2017

What to expect when you are prequalified

Before starting your house search, you'll need to get prequalified by a mortgage professional.  (see our post The Importance of Prequalification).  With the Applied Mortgage team, we complete prequalifications for free via phone, email, or we can meet in person.  Below is an outline of some steps you can expect during the prequalification process.

First, you'll speak with your loan officer.  Whether this is in person, via email, or on the phone, we'll gather some initial information from you.  It is helpful if you give your loan officer an idea of what you're looking to do -- i.e. what type of house are you looking for, what town(s) do you plan to look in, are you working with a specific Realtor, will you be living in the property?  We'll also ask about your employment, asset, and credit history to get a general overall picture of your financial situation.  

Next, your loan officer will ask you to provide copies of your supporting financial documents that will be required for your formal application.  We'll tailor the list to your specific situation depending on your employment, whether you own other properties, and what type of assets you're using for your down payment.  

The following lists some common items asked for during prequalification:

1) most recent paystub
2) 2 years of W2s or 1099s
3) 2 years of Federal tax returns
4) drivers license or other form of identification
5) 2 months of bank statements 
6) divorce documents if applicable
7) if you own other properties: real estate tax bills, insurance statements, and mortgage statements for those properties 

Once you have gathered all of the supporting documents, you can send them over via email, fax, or drop the documents off at our office.  If you are emailing, be sure to use our secure upload and usually PDF files work best.  As soon as your loan officer receives your information, a credit check is performed with your authorization and the supporting documents are reviewed.  

Finally, we will set up a time to discuss what loan programs and loan amount you are qualified for.  At Applied Mortgage, we do our best to complete prequalifications within the same day that we receive all of your financial information and have authorization to review your credit report.  Again, this can be phone, email, or in person -- whatever you feel will benefit you the most.  This is a time used to get as much education as you can on the various programs available to you.  Ask questions!  This will prepare you to decide which price range and loan option is best for your specific situation.  

At last your loan officer will issue a certificate to state that you are qualified based on the financial information you have provided.  You can then present the certificate to your Realtor so they know you are ready to make an offer on a property. 

Historic Interest Rates

As we move into 2017, industry professionals are tracking the movement in interest rates.  The data below is compiled from Freddie Mac and the Mortgage Banker's Association.  These are average industry rates and are not meant for marketing purposes.  Contact your loan officer for today's rate quote as rates change daily and even through out the day. 

In 2016, rates held at historic lows for most of the year.  After the election, we saw a recent rate increase in November and December.  According to Freddie Mac, the average 30 year fixed rate increased from 3.47% in October 2016 to 4.32% in December.  See the graph below comparing the year as a whole. 

December 2015- December 2016 rate graph

Homeowners who purchased prior to 2010 will remember a time of higher interest rates.   The chart below shows average 30 year fixed rate data from 2007-2016.  The industry is still at extreme lows for mortgage rates. 
2007-2016 Average 30 year fixed rate from Freddie Mac PMMS archive
*2016 year end data from MBA

 To really put it in perspective, take a look at the interest rates in the 1980s in the chart below!

Historic Rates from 1971-2016

The Importance of Prequalification

How can you as a potential home buyer best prepare for a future home purchase? With mortgage interest rates still at near-record lows and home prices remaining moderate compared with their highs of the last decade, now is an excellent time to consider purchasing a new home.  Whether it is your first purchase, a purchase of a larger home, or the purchase of an investment property, the better prepared you are the more successful your search will be. 

One of the most important steps that you can take to prepare yourself to be a "ready, willing, and able" buyer is to obtain a mortgage prequalification or a mortgage preapproval from a mortgage lender or broker of your choice.  These are determinations from a mortgage originator about what loan options you qualify for to purchase a home of your choice.  Both a prequalification and a preapproval are reviews of your income, assets, employment history, liabilities, and credit history.  Both establish the amount of the loan that you would likely be able to secure to purchase a home.  Either can be used to make your offer to purchase as attractive as possible to the Seller.  And during the prequalification and preapproval processes you will have a great opportunity to learn what the likely mortgage payments will be for the houses at various price ranges.  With this information you can assess what monthly mortgage payment makes sense for your budget.  

The primary difference between the prequalification and the preapproval is that the latter includes an underwriter's formal review and approval of all of the relevant documents you would submit for a formal loan application, except an appraisal of the property.  The preapproval takes longer to obtain, often two to three weeks depending on the Lender or mortgage broker.  If you have a particularly involved financial situation, or if your credit report has some challenges, the preapproval will formally establish that these circumstances are acceptable to the underwriter of your loan. 

The prequalification is a similar assessment by a loan officer for the Lender or mortgage broker.  It is not a formal commitment for a specific loan, although it is a certification that based on the information you have provided you are eligible for a particular loan amount.  The primary advantage of the prequalification is that it can be completed the same day as your mortgage inquiry.  This is important if you are trying to make an offer on a property.  Typically, the Sellers want to know that you are prequalified and they want to be able to make a decision on your offer within 24 hours or so. 

So get prequalified or preapproved! You'll be a more educated, competitive, and successful buyer. 

Written by Todd Barron, 2016