While mortgage rates remain historically low, they are going up. And, the documentation that Sellers expect to see from Buyers that are financing has gone up as well. Here are some important elements to consider BEFORE you embark on a house hunt:
How does a rate hike effect my bottom line? Let’s use a $1,000,000 purchase with 20% down. A few months ago when interest rates were 3% the total monthly payment on this including taxes/insurance would be $4,444/month. Assuming no other debt a Buyer would need to make $107k/year to qualify. Now assuming a 4.5% interest rate, that payment increases by $680/month to $5,122. This same Buyer would need to make at least $123k/year to qualify.
What documentation do I need to provide a Seller to let them know I am qualified to buy their property? Traditionally there have been three types of mortgage “pre-approvals” that lenders have offered Buyers:
- In a pre-qualification approval, the lender will obtain some surface level information from the Buyer like current income, current debts, and current address. From this information, the lender can then decide on the mortgage amount a Buyer would likely be able to take on. This approval is very “conditional”.
- A pre-approval involves a bit more, including an official application process. A Buyer’s credit report will also be pulled and verified and they may also be required to provide past pay stubs to add to the application and confirm income. When the lender has this information, they can create an approval that carries more weight than a pre-qualification. It is still considered a “conditional” approval however some of the conditions in a pre-qual have been removed.
- A fully underwritten pre-approval is the best and most comprehensive mortgage pre-approval a homebuyer can receive when they want to buy a house. The key difference compared to a standard pre-approval is that the mortgage lender performs the majority of the underwriting process beforea homebuyer even makes an offer rather than after a purchase agreement is signed. As a result, the homebuyer appears even more prepared or “vetted” to the Seller as they are fully approved for the loan amount and just need to pick a property (and in most cases get an appraisal).
THE BOTTOM LINE: Before you start your home search you want to choose the REALTOR® AND LENDER you want to work with. This is your dream team and they will enable you to show Sellers you are prepared and able to purchase their property!
Consider me your #1 resource for all things Real Estate! Household changing? Getting married (or divorced)? Time for a change of scenery or job relocation? Want to invest? Just send me an email or call 619-888-2117. I can help.
Lisa Ashkins, MA, CNE – Broker Associate, DRE#01764182 – Coldwell Banker West
San Diego Real Estate LAB 