These are two of the most commonly asked questions from first-time and experienced homebuyers alike.

Some lenders offer pre-qualifications and pre-approvals – here’s the difference.

A Pre-Qualification provides a “BALLPARK” estimate of your buying power.  It’s based on a SUMMARY of your income and assets and requires a satisfactory review of property, financial documents and program requirements to issue final approval.  This is offered by most lenders.

A Pre-Approval provides proof to real estate agents and sellers you’re pre-approved for a SPECIFIC loan amount.  It’s based on VERIFICATION of your income, credit and assets.  It also requires a satisfactory appraisal and title review once you find a house as well as no change in your financial condition for final approval.  I offer this service at no cost before you find a home.

One of the best places to start is by getting pre-approved – in advance – by a lender upfront in the process.  Not only does it give you peace of mind knowing your price range is already pre-approved by the lender, but it strengthens your position at the negotiating table, especially in a multiple offer situation as it shows the seller and their agent that you’ve got your ducks in a row and are good to go!

If you’re ready to get pre-approved to own your first home or next home, please call me today directly at 801-209-5205.

When buying a home you’re going to live in or owner occupy, there is still a common perception that one needs to put 20% down to get into that home.  The good news is you don’t need a full 20% down to own a home that you’ll be living in as owner occupied.

As a matter of fact, most of the more popular loan programs allow as little as 3% to 5% down payment including some programs offering 0% down!

This information isn’t about drilling down into the particular loan programs available, it’s to let you know that you don’t need a huge amount of money as a down payment to get into a home.  The other great news to share is that the required down payment of between 3% to 5% can now be gifted!

That’s right if you have parents, grandparents, siblings or other relatives willing to help you out, they can gift you that statutory required down payment to get you into your new home.  Good stuff!

Next let’s go over closing costs.  It’s important to understand that in today’s regulatory environment, whether you’re buying or refinancing a home, it takes a small army to get a loan from start to finish between the processing, underwriting, appraisal, title, Quality Assurance, Quality Control, funding, shipping – you get the point.  There are many folks involved in the process, so how does this affect you?

Simple, plan on 2% to 3% of the sales price of the home to cover the closing costs.  The good news here is that most folks in our market are successful in negotiating a percentage of the closing costs being paid by the seller as part of their offer to purchase.  Of course, this can vary from market to market and offer to offer but is a common practice and somewhat expected so please consult with your real estate agent when making your offer.

Wrapping this up, have the peace of mind knowing you don’t need 20% for the down payment and you may be able to negotiate the seller to pay closing costs as part of your accepted purchase offer so you’re good to go!

If you’re ready to get pre-approved to own your first home or next home, please call me today directly at 801-209-5205.

So what is mortgage insurance and when and why is it required?  When buying or refinancing a home, if one doesn’t have 20% equity then mortgage insurance is required.  For example, if one bought or owns a home appraised at $100,000 – then a loan amount greater than $80,000 would require mortgage insurance since one has less than 20% equity of the $100,000 value of the home. 

Quite simply, mortgage insurance is insurance that the consumer pays for to protect the lender in the event of default by the consumer.  Without having 20% equity in a home, it’s fair to say that if the loan went into default and the lender had to foreclose, the lender would lose money possibly not even receiving the full amount of the original loan.  

Mortgage insurance provides the lender protection so they may lend more than 80% of the value or purchase price of the home thereby allowing one to put less than 20% down at purchase.  So although mortgage insurance is somewhat despised by consumers, it serves a very important purpose in so much as it allows for less than a 20% down payment.  Cleary many more consumers are able to purchase a home sooner without having to come up with so much money to buy.  

So how does one get rid of mortgage insurance even if they have to have it in the case of less than 20% down?   A couple of ways, first one can pay their loan amount down to below 80% of the value thus no longer be required to pay it.

The other option, depending on the loan program, allows one to “buyout” or “prepay” the mortgage insurance.  With regular monthly mortgage insurance, it typically takes many years to pay down the loan below 80% before the mortgage insurance is no longer required.  The mortgage insurance company will receive several years’ worth of payments valued at several thousand dollars.  What they allow one to do, again depending on the loan program, is take a smaller amount – up front – to “prepay” or “buyout” the mortgage insurance instead of taking the several years’ worth of payments over time.  This method of mitigating the payment stream or “net present value” is called a “Super Single” mortgage insurance premium payment and can be done at the loan closing.

So what does this mean to you?  Well, instead of having a higher monthly payment that includes the mortgage insurance portion for the first several years of your new home loan, you may be able to “buyout” or “prepay” the mortgage insurance with a “Super Single” premium leaving you with a much lower principal, interest, taxes and insurance payment never having to refinance again.  It’s a “Super” way to go locking in today’s lower interest rate while never having to worry about the mortgage insurance again.  Good stuff!

Wrapping this up, have the peace of mind knowing that even though you may not have 20% for the down payment and mortgage insurance is required, you may be able to “prepay” or “buyout” the monthly mortgage insurance leaving you with a lower overall monthly payment.

So let’s go down the list of items you’ll need to round up and why they are required.  An important thing to understand is that as a loan officer we don’t personally make this list or the underwriting requirements and neither does our company.  The items needed are generally driven by the investor and as put forth by the Government Sponsored Enterprises known as Fannie Mae, Freddie Mac and others.  So here’s what we need…

First is proof of income including the most recent months’ worth of pay stubs along with the last two years of W2’s and taxes – both personal and business returns.  Most folks think that mortgage loans are based on the property since it becomes collateral or security for the loan.  Although that’s certainly part of the equation, loans are really made based on one’s ability to pay it back!  Understand that investors are in the “interest collection business” so one’s ability to show income and therefore the means to pay back the loan, is most important for the loan approval.

If you’re self-employed and don’t have paychecks, that’s OK too as long as you’ve been at your profession for a couple of years.  In that case, we’ll use the last two years of taxes including personal and business to show your income.

Next up are assets including two most recent monthly bank or credit union statements along with one most recent retirement or brokerage account statement as these are usually distributed quarterly instead of monthly.  Assets are need for down payment purposes but also for reserve requirements.  Showing the investor some additional assets such as retirement funds can strengthen a file as needed.  This doesn’t mean we are necessarily going to use those monies for your transaction so much as it shows the borrower has additional resources to cover their liabilities. 

Finally be prepared to provide who you’d like to use for homeowners insurance including your agents name, phone number and company name.  You won’t be able to own your first or next home without having insurance in place which is an important part of the process.  

And lastly we’ll need a copy of your driver’s license or other government issued ID.

Now this list isn’t all inclusive, if you’ve also had a divorce, bankruptcy, judgment, tax lien or previous foreclosure – you may be asked for additional information like the divorce decree, bankruptcy papers or IRS tax payment plan.

Wrapping this up, it’s important to work with your loan officer to gather the required items needed in a timely manner and to work together as a team.  As much as we try to make the process as easy as possible, the guidelines may require additional documentation than what was asked for up front after underwriting.  Please don’t take this personally but understand that crossing the t’s and dotting the i’s is simple part of the process.