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 There's
no point to begin shopping for a home
without first obtaining
a letter of
pre-approval
stating that a mortgage
lender has formally
reviewed your finances
and agreed to lend you a
specific amount of
money. This letter is
essential when making an offer on
a home because it assures the seller that
you will be able to
purchase the
home. An offer
without a pre-approval
letter
will likely be rejected.
A letter stating that
you've been pre-qualified may be worthless
when submitting an
offer. These only estimate
what you might be
able to afford without a formal review of your financial
situation.
Applying for a mortgage
A mortgage
is a product, just like a car, so the cost and terms may
be negotiable. Lansing area banks, credit unions, and private
financing companies all offer mortgage products.
Their products may differ and they will likely quote
different interest rates and closing costs. Ask your
Realtor to provide names of a few good lenders. Your
Realtor has experience
with these matters and
will recommend someone
reliable.
IMPORTANT:
Closing costs can vary several thousand dollars for the
same services. Shopping around for the
loan will allow you to compare mortgage costs and help
you get the best deal. |
Mortgage lenders are
primarily interested in
your ability to repay
the mortgage loan. They'll ask you to fill out an application form which
asks for detailed information about you, your employment
record, your personal finances, your earnings, your
monthly expenses, and your debts to help gauge your
willingness and ability to repay the mortgage.
Universal Residential Loan Application
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A review of your
financial situation will
determine how much money
they’ll agree to lend.
The factors include: |
- Gross
monthly income.
- Two of
years of employment on the same job or
field.
- Credit
history.
-
Outstanding debts
- Down
payment.
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The
lender will be unable to give you a
definitive answer without reviewing
your credit and
employment history.
Having the necessary
documentation available
will speed up the
process. This is the
documentation usually
requested at the time of
formal application: |
-
Social
Security
Number
-
Payroll
check
stub
-
Cancelled
checks
or
receipts
for rent
or
mortgage
payments
-
Tax
returns
for the
past two
years
-
Loan,
charge
account
and
credit
card
balances
-
Long-term
investment
assets
-
Verifiable
child
support
or other
income
sources
-
Credit
report
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IMPORTANT:
Don't let every lender you interview
pull your credit information. This
will cause your credit score to drop
twenty points each time. Instead,
pay for one report and make copies
to provide to other lenders. |
The Good Faith Estimate
of Closing Costs
Closing costs pay for
the expense of
exchanging a piece of
real estate.
If
you could pay cash for a
home, your total closing
cost would be about
$60.00...the fee for
recording the
deed. Because you’ll be
getting a mortgage, your
closing costs will cover
every expense associated
with qualifying for the
loan. This will amount
to between
one to eight percent of
the sale price depending
on the kind of loan
you've chosen.
Michigan law requires
every bank, credit
union, or mortgage
company to give you an outline
of expected closing
costs at the time you
formally apply for a loan. Although this is an estimate,
the figures should not vary too greatly from the actual
fees you’ll pay at closing.
When shopping for a loan,
compare only the fees that the lender controls.
Lenders have no control over property taxes,
title-related fees, or
the cost of homeowner's
insurance.
Review the closing costs estimates and don’t be afraid
to ask questions about fees
you don't understand. Watch
out for unusual fees and additional charges that seem
questionable and do nothing for you. These are referred
to as "Junk Fees" in the Mortgage business and
only serve to make the broker a little richer.
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Typical closing costs: |
-
Loan application fees and credit report
-
Title insurance
-
Property appraisal
-
Survey
-
Down Payment
-
Mortgage insurance (PMI)
-
Hazard insurance
-
Recording fees
-
Money
transfer fees
Documentary stamps on new note
Escrow account balances.
(Prepaid taxes, interest and insurance.)
Points and origination fees
(This fee can vary greatly with each lender)
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IMPORTANT: Make certain that you receive, and understand,
the good-faith estimate before you a commitment to any
lender. |
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NOTE: The cost of a
home inspection is an out-of-pocket expense you'll need
to pay
at the time of the inspections. A home inspection is not
usually required by lender
and isn't included in the
closing costs.
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What are "Seller paid Closing
Costs"?
Many home buyers are unable to save money for closing
costs and have them built
into the mortgage. Often the mortgage lender will
recommend that the Realtor write
an offer in which
the seller is asked
to pay your closing
costs. This doesn’t
mean that the seller
is giving you a
gift. You’ll still
be paying your own
closing costs.
This is what happens: Suppose you're willing
to offer $125,000
for a home and your
closing costs are
estimated to be
$3000. Your Realtor
will write the offer
for $128,000 asking the seller to
contribute
$3000 toward your
closing costs. The
seller receives $125,000
for his property
while you will be
financing an
additional $3000
($128,000)
through your
mortgage lender.
It's completely legal and everybody gets what they want.
How large
a mortgage will you be
able to get?
A general rule is that
you usually can qualify
for a mortgage loan of
two to two and one-half
times your household's
income. For example, if
your family has an
income of $50,000 a
year, you can usually
qualify
for a mortgage
of $100,000 to $150,000.
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