Everyone in real estate remembers having your clients call up the mortgage company to get an instant over the phone mortgage pre-approval. Those days are over. The lender faxed the approval to the agent and clint immediately or within a few hours. We then submitted that mortgage preapproval with the agreement of sale as proof that our clients were solid buyers and had already started down the road of financing. That and a buyer's financial showed the seller we had a mortgage in the works and had the funds to get to closing. The letter was couched in all the mortgage industry marketing language like " We are happy to be of service and now you can go out shopping for the home of your dreams assured that Happy Mortgage Company will be with you every step of the way" and lines like that.
Welcome to 2011 where the reality is the mortgage company will run a credit check on the client first to see how strong there history is and then give out mortgage advice based squarely on the client's income and recurring monthly debt and how much the buyer is able to put down on the transaction. The full pre-approval letter will take 2 to 4 weeks to be generated after you submit the required items.
The mortgage company will require the last two years tax returns and copies of your current pay stubs, the last 3 months bank statements, and copies of any annuitys, 401k, or investment company statements. They will want a detailed list of your recurring monthly bills.
As realtors we are happy overall with these changes. Yes, it is tougher to get a mortgage for your clients but once the client gets a full pre-approval letter you have a much better chance of the transaction actually getting to settlement. The number of transactions running into mortgage problems for the buyers have grown dramatically the last year because the underwriters who must approve the loans are demanding all of the above items. The initial contact with a mortgage company has a job and that is to bring in clients to their company. They then turn it over to a processor who gets it to the underwriter and they have the final say on the approval.
The new mindset of the mortgage companies hurts the first time home buyers the most because they as a group had less money saved and weaker credit scores. It effects everyone though because if the first time home buyers cannot get financing the people selling their homes cannot move on with their life and change their living conditions. People moving up to bigger homes, work transfers, estate sales, empty nesters, seniors looking for a different style of home to age in, we are all being influenced by the first time home buyer's inability to get financing. This housing recovery will continue to be weak until more financing is available.
We spoke with a mortgage counselor the other day and they were looking for a minimum credit score of 680 and would issue a mortgage on 45% of the cash left after paying your monthly recurring bills. A $200,000 mortgage at 5% is roughly $1,000. If you have $3000 of disposable income left after paying your recurring bills 45% of that is $1350 to work with.
FHA requires 3.5% down and will finance some of the closing costs but a traditional mortgage wants 10 to 20% down and the settlement cash also. We had clients who mortgaged 100% of the cost of the home with no money down and had a gift letter from family for the settlement cost. The lenders could not write these loans fast enough. The boom times numbers are quite different from today's reality.
So be prepared to bring all these items to the table. Have a little cash saved. Be forthright in the information you provide to your agents and mortgage company and go into the deal with your eyes wide open knowing what you need to provide.
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