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Everything to Know About the Pre-Approval Process

by Rebecca Shahan

No doubt, you've already hear about being "pre-approved" if you're planning on buying a home. Yet many people don't fully understand the process.

What is Pre-Approval?

In short, being pre-approved for a mortgage means that the lender decides if you're eligible for a loan and how much you can borrow. This decision is based on your finances and credit rating.

Why Do I Need to Get Pre-Approved?

Being pre-approved is necessary for a number of reasons. It gives you clearer picture of how much money you need to complete the buying process. The more you put down, the lower your monthly payments will be. You will also get a better idea of how much you can afford for the total price of the home.

Many people make the mistake of thinking that the loan product that a friend used will work the same for them. Even though that's a possibility, it's not safe to assume so. No two loans are alike, just as no two lives and circumstances are alike.

Loan products also have different costs, such as varying lender origination fees. Your loan officer can work with your to learn the costs of a loan and how the loan process works.  This will give you a good idea of what costs to expect.

Knowing these things will make you more comfortable when deciding on a home to buy. It also shows sellers that you're serious about making an offer, giving you an edge over buyers who haven't been pre-approved.

Getting Pre-Approved is Easy

Pre-approval is an easy process, so there's no reason not to do it. You just need to know how much money you make, assets, and debts.

What Will My Lender Need to Check During Pre-Approval?

  • Your credit score. Yes, your lender will then have to pull your credit. Don’t worry, pulling your score once shouldn’t affect your score. 
  • W2s or 1099s
  • Pay stubs
  • Tax returns
  • Bank statements
  • Account statements
  • Your list of monthly expenses

Gathering all these documents can feel like busy work and is typically the hardest part for you.

If you want to have an idea of whether you’ll get pre-approved before choosing a lender, a good first step is finding out your debt-to-income ratio, or DTI. Your DTI ratio helps a lender understand how much of your monthly income goes to paying debt and what you have left after those debts are paid. You can calculate the ratio by dividing monthly debt payments by gross monthly income.

The lower your debt-to-income ratio is, the better. A lower DTI will make you seem less risky to lenders.

Although each loan product is different, most lenders would prefer your debt-to-income ratio to be at 36% or lower.

Check back on our blog twice a week for more real estate news, ideas, and local events in Austin and Lake Travis. You can search for the perfect home on our website using our powerful home search tools. You can also get free listing alerts of homes as they hit the market at WelcomeToLakeTravis.com. And you can always feel free to call us at 512-657-4467​ to talk to an experienced agent today.

Things to Know Before Accepting - or Rejecting - an Offer in Austin

by Rebecca Shahan

If you have your home on the market, you'll soon be getting offers. When that happens, you'll need to decide which offers is best for you.

Your real estate agent will be a huge help with this. Agents know how to determine the pros and cons of an offer, since there's more to it than just dollar signs. They have a sense of your financial and personal goals, so they can help you decide if the offer being made matches those goals.

Before the first offer rolls in, here’s what you need to know about the offer evaluation process, including the main factors that should go into making a decision with your agent.

When vetting offers, evaluate these areas in addition to price:

The earnest money deposit.

An earnest money deposit, or EMD, is the amount of cash a buyer will pay when the agreement is signed to show they're serious about buying your home. This money is usually held by the title company and goes toward the down payment at closing.

A standard EMD is 1% to 3% of the cost of the home. If a buyer tries to back out of an offer for no good reason, the seller typically keeps the EMD. Therefore, the higher the earnest money, the stronger the offer.

The down payment. 

In most cases, a mortgage requires some down payment. The size of a down payment can determine the strength of an offer. As a seller, your main concern is for the transaction to close. And for that to happen, the buyer’s mortgage has be approved.

In most cases, a larger down payment indicates that a buyer has the cash to make sure the sale goes through. This means that if the appraisal comes in higher than your contract’s sale price, the buyer with a higher down payment would more likely be able to cover the difference with the large amount of cash they have available.

The closing date. 

Closing is when the final paperwork is signed and the sale is final. The entire process, from accepting an offer to closing, takes between 30 and 60 days.

Three days before closing, the buyer receives a closing disclosure from the lender, which he compares with the loan estimate he received when he applied for the loan. If there are material differences between the buyer’s loan estimate and closing disclosure, the closing can’t happen until those amounts are reviewed and approved. But this is rare.

Some transactions can take more time, depending on the buyer’s financing. For example, the average closing time for a Federal Housing Administration (FHA) loan is 43 days, according to Ellie Mae.

Whether you want a slow or quick settlement will depend on your circumstances. If you’ve already purchased your next home, for instance, you probably want to close as soon as possible. On the other hand, you may want a longer closing period if you need the proceeds from the sale to purchase your new home.

Check back on our blog twice a week for more real estate news, ideas, and local events in Austin and Lake Travis. You can search for the perfect home on our website using our powerful home search tools. You can also get free listing alerts of homes as they hit the market at WelcomeToLakeTravis.com. And you can always feel free to call us at 512-657-4467​ to talk to an experienced agent today.

Displaying blog entries 1-2 of 2

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