After hiring a Realtor to represent you through the process, getting pre-approved for a mortgage is the next step. As a Nashville Realtor, I will not put an offer in on a home for a client unless they have been pre-approved. Pre-approval is important because it outlines how much you qualify to borrow and allows you to determine your comfort level about monthly payments, insurance, interest rates, etc. If this is your first time, this glossary of terms to review might prove helpful.
Selecting a good mortgage lender is a crucial part of ensuring a smooth transaction; and I recommend using someone with a local Nashville office. Working with a bad mortgage lender can make the process of living hell for everyone involved and put your purchase in jeopardy of not closing. You also might end up regretting it for years by paying a higher interest rate than you should have if you had shopped your loan through various lenders, by losing 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.
Connie Eddy at SWBC
Darren McCroskey at Churchill Mortgage
Ryan Stackhouse at Access National Mortgage
Paperwork You Need To Gather
Each lender has slightly different requirements regarding what documentation they need from you for the pre approval process, but in general, expect to provide the following items:
- A completed application provided by the lender
- The two most recent months (or a quarterly statement) of any asset information listed on the application. Generally: checking, savings, 401k, mutual funds, individual stock accounts, IRA’s
- Most recent month of a pay stub
- Past two year’s worth of W2 (ie. 2013 and 2014 W2)
- Past two year’s worth of US Tax Returns (ie. 2013 and 2014 Federal Tax Returns)
- 2014 and 2015 Corporate Tax Returns (if self-employed and you own over 25% of the company)
Getting a Pre-Approval Letter
In general, once you submit the above items to your lender you should receive a pre-approval letter within 2 business days though 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 me for your file so I can have it when we are ready to submit an offer.
Get a Good Faith Estimate and Understand Your Closing Costs
In addition, mortgage lenders are required to provide you with a Good Faith Estimate (GFE) within 3 days of receiving your pre-approval. The GFE 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, I estimate closing costs to be approximately 2.5% of the purchase price of the property. 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).
Questions about the pre-approval process in Nashville and surrounding areas? Just call me at 615-418-0563 or email me email@example.com