In today’s competitive real estate market, potential home-buyers need every advantage they can get.
One way to differentiate your offer from the myriad of others is a true “TBD underwritten” loan approval.
I’m not talking about the typical pre-qualification letter that is a cursory overview of a borrower’s ability to gain an approval, but a fully underwritten approval that is only waiting for a contract.
This process is for the home-buyer who wants a
solid, iron clad pre-approval that has been fully underwritten and signed off
by mortgage underwriters.
How does that work?
Well, it
works very similarly to a full-fledged underwrite – except the address is left
blank – or “TBD” (to be determined). The
underwriter analyzes the file as if it was a true loan – and provides the
actual loan conditions that the borrower must meet.
What’s the downside?
The only real
downside is time. This process could
take as long as a few weeks, because all documentation needs to be gathered
(tax returns, W2s, pay stubs, bank statements, etc.) and then analyzed by the
underwriter.
What’s the advantage?
There are a multitude of advantages. First and foremost, the borrower will know the exact size of the mortgage that they will be able to qualify for. They will have a very good idea of the monthly payment and be assured that the loan will go through.
Equally important, the offer you submit will essentially be like a cash offer. The real estate agent presenting the offer will share with the seller’s agent that the mortgage approval is actually confirmed – not pre-qualified. This will make your offer much more attractive to the sellers, as they don’t have to be concerned about mortgage approval.
Finally, the closing can take place more quickly than standard
financed transactions. Essentially all
that’s needed is an appraisal to confirm the value of the property. Instead of a 30 to 45 day close, these can be
done in less than 20!
In Conclusion
If you know that you will be purchasing a home in the near future,
ask your mortgage lender about a “TBD approval” to see if that’s an
option. If so, I highly recommend that
you go through the process early – and in that way you will be miles ahead of
your buying competition!
Please do reach out to me for more information, as I can absolutely help you with a “TBD” underwrite!
Saving for a down payment can be one of the most important and most challenging facets of buying a home. The larger the down payment, the lower your loan amount – and that results in a lower monthly payment, a lower interest rate in many cases, and it could help you to avoid mortgage insurance.
But, there are some out there that can get around bringing in a large down payment. Many have family members or others who are willing to help them out – and that’s when “gifting” comes into play.
The Gift Letter
Borrowers
can get help from parents or other people that care about them, but they will
need to get a signed statement from that giver that the money is, in fact, a
gift and not a third-party loan.
The
mortgage gift letter must include the giver’s name, address and contact
information, as well as the banking information of that particular account, as
well as the recipient’s name and relationships to the giver and the dollar
amount.
In most
cases the lender will have a template letter that will help you with this step.
A Key Piece – Documenting the Gift
When putting
together the gift letter, the giver needs to include documentation of where
that gift is coming from – this is extremely important
For instance,
the lender will most likely need to see a bank statement or other form of proof
verifying that the donor has the money to provide that gift and/or paperwork
showing an electronic transfer between the donor’s account and yours.
If the person
gifting the funds is selling shares of stock or other investments to provide
the cash for a down payment, the giver will need a statement from their brokerage account showing that
transaction.
Most
importantly, as a borrower, you don’t want to add the gift funds with any of
your other finances. Doing so could complicate the paper trail and cause the
lender to reject the gift altogether.
It’s easiest
to have the giver wire the money straight to escrow at closing – that way there
are no issues with documenting the gift.
Rules and Limits On Gifts
You might assume that you can just use
whatever financial gifts your loved ones give you for a down payment,
but using gift money is not as simple as you might think. The source of the
funds in your bank account, and the givers, will matter just as much as how
much money you actually have.
Secondly, the amount of down payment funds that can be gifted depends on the type of mortgage loan involved. If you’re getting an FHA loan with a 3.5% down payment, for instance, the entire down payment can be a gift.
On the other hand, if you’re using a conventional Fannie Mae or Freddie Mac loan, the entire down payment can only be a gift if you’re putting down 20% or more of the home’s purchase price. If your down payment is less than 20%, some of the money has to come from the borrower.
These rules are subject to change based on lending regulations,
so check with your mortgage lender to make sure that you transaction qualifies
for the use of gift funds.
Primary Residences
If a borrower is purchasing a primary residence, they can use
gift funds for their down payment. These following regulations apply:
If it’s a single-family home, you can use gift funds without
having to contribute any of your own money to your down payment.
If it’s a multi-family home, you can get a home without having
to contribute to the down payment as long as the down payment is 20% or more.
If the down payment is 20% or less on a multi-unit home, you have to contribute
at least 5% of your own funds to your down payment.
Second Homes
For a second home purchase, the following regulations apply
regarding gifts and gift limits:
If you’re making a down payment of 20% or more, all funding for
the down payment can come from the gift.
If it’s less than 20%, then 5% of your down payment must come
from your own funds.
Investment Properties
Gift funds cannot be used toward the down payment on any
investment property.
Who Can Gift a Down Payment?
Depending on the type of loan, there are different regulations
on who may give a down payment gift.
Conventional Loans (Fannie Mae/Freddie Mac)
A conventional loan through Fannie Mae or Freddie Mac means the
gift must to come from a family member. Per their regulations, family is
defined as:
Spouse
Parent (including step and foster)
Grandparent (including great, step and foster)
Aunt/uncle (including great and step)
Niece/nephew (including step)
Cousin (including step and adopted)
In-laws (including parents, grandparents, aunt/uncle, brother-
and sister-in-law)
Child (including step, foster and adopted)
Sibling (including step, foster and adopted)
Domestic partner
Fiancé
FHA Loans
With FHA loans, the list is nearly identical to the conventional
rules, including future in-laws. But, some restrictions do apply – so do check
with your lender for details.
While cousins, nieces and nephews aren’t able to give your gift
under normal family guidelines with an FHA loan, the FHA does allow for gifts
from close friends who have a clear interest in your life. This can include
extended family like cousins, nieces and nephews and even former spouses.
In addition to the ‘close friend’ guideline, the FHA also allows
for gifts from the following:
Employer
Labor union
Charitable organization
Finally, you can receive funds from a government agency or
public entity that provides homeownership assistance to low-to-moderate income
or first-time home buyers.
In Conclusion
Please reach out to me for more information on gifts and mortgage qualification, as it would be my pleasure to help you!
Let’s get this straight and right up front: every real estate transaction will have closing costs – title fees, origination fees for a loan (if you need to finance the property), and recording fees, just to name a few.
So, how can a buyer purchase a house without actually paying those closing costs? Well, read on for more!
What this really means is that the closing charges are folded into the loan balance — if the house can appraise for the selling price plus the closing costs.
And there are pros and cons to doing this, as will be highlight later.
It’s also likely that not every single closing cost can be rolled into your loan. The buyer will most likely still be required to pay some fees at the settlement table. Those specifics will vary by lender.
“Closing costs” is a
collective term for the various fees and charges you’ll encounter when buying a
home. Some of these fees come from the lender and others come from third
parties that are involved in the transaction, like home appraisers, homeowner
associations (HOAs), and title companies.
How much are closing costs
usually?
On average, homebuyers pay closing costs ranging from 2% to 5% of the purchase price. Unfortunately, this is only a ballpark figure, as there are many variables in each individual transaction. You can find out more specifics on closing costs here…
Many lenders will require that you apply for a loan prior to receiving a more precise estimate of closing costs; however, some lenders are more transparent with their available options and will do the necessary legwork to provide you a better idea of those costs.
Can you buy a house with no
closing costs?
The reality is that closing
costs have to be paid one way or the other – and by some or all parties in the
transaction. Your decision will be whether you pay them with cash when you sign
your loan, or as an added expense in each monthly mortgage payment.
How a no closing cost purchase
works – it’s all in the financing
Per Bundrick in his article: “lenders can structure no closing cost loans in two ways. The differences between them are subtle, yet the result is the same.”
You
finance the closing costs. In
this case, the lender will add your closing costs to your total loan balance.
Your monthly payments will be slightly higher, and you’ll be paying these
closing costs, with interest, for the full term of your loan — so, for example,
over a period of 15 or 30 years.
The
lender will absorb the closing costs in exchange for a higher interest rate. Again, you’ll pay a bit more each
month, and your total interest cost will be greater over the life of the loan.
Either way, your
monthly payment rises slightly. You’ll pay less at the closing table, but more
over the long term.
Is a no closing cost
mortgage a good idea?
The answer is….it
depends!
If you are a little low on cash and have found your dream home, then yes – rolling $4,000 to $8,000 into your mortgage is a good idea. It won’t increase your monthly payment by much and generally doesn’t impact qualification.
Also, if you plan on
moving, selling, or refinancing in the short term, wrapping your closing costs
into the balance can be a good strategy.
However, if you’re
going to live in your new home for the long-term, you will pay more over the
life of the loan by financing your closing costs or accepting a higher interest
rate.
So if this is your forever home and you plan on keeping the mortgage for 7+ years, it’s probably best to pay the closing costs up front.
It’s a good idea to put together a list of questions to ask potential lenders in order find out which one will be best for you. These and other questions should help you choose the right lender and the best home loan.
How do I obtain pre-approval?
One of the best ways to
ensure a smooth home buying process is what you do before you begin
your home search.
Mortgage pre-approval,
without the pressure of a closing date, is easier than trying to engineer a
full approval from the ground up. And having a pre-approved mortgage means you
can close faster when you’re ready to buy.
Ask the lender what documentation they need and what processes they have in place to secure and automated underwriting approval. If they can’t provide that information, find another lender! You can find out more about the pre-approval process here….
Which type of mortgage is best for me?
This question will help you know if you’re talking to someone who wants to sell you a loan quickly — or a trusted loan advisor who will be looking out for your best interest.
When you ask, “What are my
options?” for a particular type of loan, the mortgage lender should dive deeper
into your situation and ask YOU questions about your financial goals. You can really gauge the professionalism of
the lender by the questions he/she asks.
What’s your communication style?
Mortgage lenders can communicate with you in
multiple ways – including by phone, email and text. Some are tech savvy and
others prefer traditional methods.
The point is to be clear about what you
prefer.
If you respond more quickly to text messages
versus voicemail – tell your loan officer. Often times, there are time
sensitive issues that arise during the loan process, so it will make everyone
happy if your loan officer knows how to get questions answered, additional
documentation etc. in a timely manner.
How often will I be updated on the loan’s progress?
You
should be introduced to all parties that will be involved with your loan – from
the originator, to the processor, and any other assistants. Have their contact information handy during
the loan process.
And how
will you be updated on the progress: by email, phone or an online portal? How often?
I
recommend that you share your service expectations upfront, and check to see if
the lender you are working with has these types of processes in place that meet
your requirements. If not, move on!
How much down payment will I need?
A 20% down payment may be nice, but borrowers have multiple choices. Qualified buyers can find mortgages with as little as 3% down, or even no down payment, depending on the property location.
Again, there are considerations for every down payment option and the best lenders will take the time to walk you through the choices, based on your stated goals. You can find out more about down payment requirements here….
Will I have to pay mortgage insurance?
If you put down less than 20%, the answer will probably be “Yes.” Even if the mortgage insurance is “lender paid,” it’s likely passed on as a cost built into your mortgage payment, which increases your rate and monthly payment.
You’ll want to know just how much mortgage insurance will cost and if it’s an upfront or ongoing charge, or both. You can find out more about mortgage insurance here….
Are You Equipped to Approve Loans In-House?
Underwriters review loans and issue conditions
before approving or rejecting a loan. Ask
if the lender handles its own underwriting and does their own approvals. This can be a make or break proposition if
you need to close the loan in a timely fashion.
What other costs will I pay at closing?
Fees that are charged by third parties, such as for an appraisal, a title search, property taxes and other closing costs, will be paid at the loan signing. These costs will be detailed in your official Loan Estimate document and your almost-time-to-sign Closing Disclosure.
Of
course, you want to know what your target closing and move-in dates are so you
can make preparations. And just as important: Ask what you should avoid
doing in the meantime — like buying new furniture on credit and other
loan-busting behavior.
Is there anything that can delay my closing?
Well, buying a home is a complex process with many stages and requirements. While delays are normal, the best way to avoid them is to stay in touch with your lender and provide the most up-to-date documentation as quickly as you can. If you have any past credit issues or job related changes, let your lender know immediately to avoid any last minute delays.
Unless all of your clients are cash buyers, mortgages are an integral part of any real estate agent’s business. Knowing some basics about mortgages will make you a better adviser to your clients and a more effective agent.
With that in mind, here’s a brief list of topics that real estate agents should understand in order to best help and advise their clients.
Although it is by no means necessary to become a mortgage expert, the following five mortgage insights will increase your value as a real estate professional.
The minimum down payment is not 20%
Most agents already know this, but a 20% down payment is the amount necessary for a buyer to avoid paying private mortgage insurance (referred to as PMI) on the loan. There are many conventional loan programs require as little as 5% down.
For first-time homebuyers, recent conventional loan programs introduced to the market allow buyers to get a loan with only 3% down. If you work primarily with first-time homebuyers, you should also be aware of down payment assistance programs offered by local governments and municipalities.
Even move-up buyers should get a mortgage pre-approval
Many of the first-time buyers I work with get pre-approved so they
know how much they can afford to spend on their new home. But not all realtors
encourage move-up buyers to seek pre-approval, and I think they should.
The situation may have changed from the time their clients
originally took out a mortgage. Even if they’ve built up a lot of equity, it
may not help the buyer if their income or credit is not aligned with the price
of the property they hope to buy.
Oftentimes, people who have qualified for a mortgage at one time
are surprised by new and current restrictions and underwriting standards. For
this reason, real estate agents should encourage their clients to speak with a
mortgage broker even if the client thinks they already know the ropes.
This can help avoid surprises or disappointment further down the
line and save time for agents and their clients.
Shopping around for a mortgage will not hurt your credit score
Shopping around for a mortgage with multiple
lenders is highly recommended, and even though credit inquiries do impact a borrower’s
credit score, there is an exception when it comes to credit inquiries from
mortgage lenders.
All such inquiries made in the 30-day period
prior to scoring your credit are usually ignored. Furthermore, inquiries
outside of that 30-day period that fall within a typical shopping period are
counted as only one inquiry.
If you’re working on a condo deal, it is in
your and your client’s best interest to work closely with the mortgage loan
officer to make sure the property meets the lender’s underwriting criteria.
This is typically done through a condo questionnaire.
If you are the seller and state on your listing that the property can be conventionally financed, I highly recommend that you have the HOA documentation ready for the prospective buyer.
Among other things, they will be looking out
for things such as pending litigation against the condo association, the
percentage of units that are owner-occupied and whether any part of the
building is used for commercial activity.
Many condo transactions are either seriously
delayed or completely derailed by last-minute surprises that should have been
discovered early in the process.
Some realtors encourage their clients to shop around for rates at
the last minute or promise mortgage interest rates to clients that they have
seen online. This can often lead to frustration because not everyone will
qualify for those advertised, ultra-low promo rates and there may be additional
stipulations such as a quick closing or mortgage insurance.
That’s why I personally don’t promise rates until I have a
completed application and all supporting documents. No two files are the same,
so it’s best not to promise something over which we have no control.
There is a lot more to know when it comes to mortgages – and like I stated early, there’s no reason to become a mortgage guru! With that said, these five tips will help you look like a more that capable advisor in the eyes of your clients.
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
