If you are like most people buying a home in Southwest Florida, or anywhere around the country, you will likely need financing to help pay for your home.
The first step to obtain financing is a letter of pre approval. This means a mortgage lender has verified that you are approved for a mortgage of a certain amount over a fixed time period.
Pre-approval letters are prepared before you pick out your home and remove some of the uncertainty in the home-buying process.
In the current housing market, Southwest Florida real estate agents and sellers prefer to work with buyers who have obtained a loan pre-approval loan. Getting pre-approved means that a lender must review and verify the home buyer’s income, credit and assets to ensure that the buyer can make the necessary monthly payments on the home.
The lender should tell you exactly what you need, but be prepared to include:
- W2 statements (or 1099 income statements) for the last two years
- Federal tax returns for the last two years
- Bank statements for the last few months
- Recent pay stubs and proof of other income
- Proof of investment income
The lender will take all of this information into consideration so they can determine what kind of loan the buyer is pre-qualified for. Then, a Good Faith Estimate and Truth in Lending statement are generated detailing the terms of the loan and the closing costs.
This is the document you as the buyer will use to compare and contrast different loan offers. They should be fairly close, so go with the best deal from the loan officer you trust the most.
“When seeking pre-approval, talk to a few different mortgage lenders to find the best mortgage package that suits your needs, generally two or three lenders is customary” national sales manager at Wells Fargo Home Mortgage in Danville, Califorina, Brad Blackwell, says. “More aren’t necessary to get a good deal because loan packages are generally very similar and pricing tends to be comparable.”
Home Loan Terminology:
Here are some key terms that you will want to become familiar with during the loan application process:
- Credit report – Request your lender to order a credit report from a third party credit agency such as Equifax, Experian or Trans Union. A credit report should contain information on all your outstanding loans and repayment history, and will typically cost under $50.
- Application/processing fee – This is the lender’s fee for determining your capacity as a borrower and will usually be charged upon the closing of the loan. Expect a price tag of a couple of hundred dollars.
- Annual percentage rate (APR) – APR is the sum total of all your borrowing costs as a interest rate percentage charged on the loan balance.
- Indexes – Changes in indexes, such as the Federal Funds Rate and the Treasury Bill, are used to periodically readjust the interest rates in adjustable rate mortgages (ARMs).
- Points – When mortgage companies are competing by offering lower interest rates, they may charge you a “point”, a one-time pre-paid interest fee, calculated as a percentage of the loan. Points are considered part of the cost of credit to the borrower, and part of the investment return to the lender. They may range from 0.25% to 2% of the loan balance, and are usually paid up front. One point equals 1%.
- Appraisal cost – Fee charged by an independent appraiser who may be hired by your lender to evaluate the property’s purchase price, condition and size in relation to similar recent neighborhood sales. This information is necessary to the lender because it ensures repayment in case the borrower defaults, forcing the lender to sell the property.
- Pre-payment penalties – Prepayment penalty is a provision of your contract with the lender that states that in the event you pay off the loan early, you will pay a penalty. Penalties are usually expressed as a percent of the outstanding balance at time of prepayment, or a specified number of months of interest.
- Miscellaneous fees – Miscellaneous costs that may be incurred during the processing of your loan request include a notary, courier, county recording fees and title company escrow fees, etc.
We have mortgage specialists who can assist you with your Southwest Florida home loan financing. But use our Southwest Florida real estate expertise to alleviate your stress and make your home purchase a pleasant one.
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