How Long Does It Take to Get Approved for a Mortgage?

preapproved mortgage

Unless you have a few hundred thousand dollars in cash handy, getting approved for a mortgage is a critical part of purchasing your new home. The mortgage approval process can take anywhere from 30 days to several months, depending on the status of the market and your personal circumstances.

Read on to learn what to expect from the process and what you can do to speed it up.

1. Mortgage Prequalification Letter: 1 to 3 Days

Before you start house hunting, apply for a prequalification letter from a mortgage lender. This will give you a rough estimate of how much a lender could offer you in a mortgage.

Don’t wait on a prequalification letter just because you’re not sure which lender to go with yet. It’s not a contract between you and a lender, so you can get your prequalification letter from one lender and your mortgage from another.

Getting a prequalification letter takes one to three days, and it’s surprisingly simple. All you need to do is provide a lender your best guess on your income, credit history, assets, debt, and down payment. The more accurate your response, the more accurate your prequalification will be, but most lenders won’t require any documentation at this phase.

However, when you’re shopping for a home, it’s important to know where you stand financially. Look at your credit reports, bank statements, outstanding debts, and credit scores. If you don’t know what your credit profile looks like, check Credit.com’s free credit report.

2. Mortgage Preapproval: 3 Days to Several Months

While a prequalification letter is handy, you’ll need preapproval for a mortgage when you’re serious about buying a home. Most home sellers will require you to have preapproval before considering your offer. Preapproval can also speed up your final mortgage approval, so if you want to get into a home quickly, don’t wait on this step.

A wide range of complicating factors means that preapproval for a mortgage could take as short as three days to as long as several months. Personal issues like a low credit scoreprevious short sales, previous foreclosures, and outstanding debt with the Internal Revenue Service can elongate the process, so be up-front with your lender about these potential problems.

To speed up the process, prepare your important financial documentation to submit to your lender. Your lender can tell you exactly what they require, but the following documents are common:

  • Driver’s license
  • Social Security card
  • Most recent 2 months of bank statements
  • Most recent 30 days of pay stubs
  • Most recent 2 years of W-2s
  • Most recent 2 years of federal tax returns

Along with these documents, your lender will also pull a credit report. All of this allows them to give you a very clear picture of exactly the type of mortgage they can provide. This will be documented in a preapproval letter, which is valid for about 60 to 90 days.

3. Mortgage Final Approval: Up to Two and a Half Weeks

Once you make an offer on a home and it’s accepted, it’s finally time to start on the final approval for your mortgage. Because you already provided your lender with your financial information, this part of the process is much less involved.

Before giving final approval, the lender will conduct an appraisal on the house, which verifies the home’s market value. House appraisals protect lenders from offering mortgages that are too exorbitant for the house’s worth.

The tricky part of an appraisal is scheduling a licensed appraiser to look at the house. It’s reasonable to assume the appraiser will already be booked out for the next two weeks, but once the house is appraised, the final mortgage approval can be processed within two days. So in total, it can take about two and a half weeks for final approval on a mortgage.

A Loan Officer’s Take

Three days is the fastest loan officer Scott Sheldon has ever seen someone get approved for a mortgage.

“He had every single iota of possible documentation you could imagine up front,” says Sheldon, who’s a senior loan officer in Santa Rosa, California. That three-day turnaround was unusual, but so was the time it took roughly two months to get mortgage approval.

“If the borrower was just a little bit more transparent up front, we probably wouldn’t have had that,” Sheldon says. “Many times, the documentation and supply opens up more questions.”

Sheldon says consumers often expect preapproval in a day, but that’s not enough time to thoroughly complete the process, especially if important documentation hasn’t been provided.

“My best advice to buyers is let your lender preapprove you—give them at least 72 hours to really preapprove you with all your financial documents, including a credit report,” Sheldon says. “It’s only as good as the information we put in there.”

You don’t want to miss out on your dream home because you were waiting on mortgage preapproval. If you’re about to start house hunting, prepare now by getting your finances organized and your documentation ready to send to your lender when the time comes.

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The 5/1 ARM Mortgage: What Is It and Is It for Me?

5/1 ARM mortgage
iStock

Finding the right mortgage can be a confusing process, especially for first-time homebuyers. There are so many options that it can be hard for a consumer to know how to get the optimal rate and terms.

One way to get a better initial interest rate is by taking out a 5/1 ARM mortgage. Small wonder that many potential borrowers want to know what makes a 5/1 ARM mortgage so unique and whether it might be the right loan for them.

Below is a guide to how 5/1 ARM mortgages work, how they are different from traditional 15- and 30-year mortgages, and what pros and cons consumers need to understand.

How a 5/1 ARM works

A 5/1 ARM mortgage, as explained by MagnifyMoney’s parent company, LendingTree, is a type of adjustable-rate mortgage (hence, the ARM part) that begins with a fixed interest rate for the first five years. Then, once that time has elapsed, the interest rate becomes variable. A variable rate means your interest rate can change. Consequently, so can your payment.

The number “5” in “5/1 ARM” means that your interest rate is fixed for five years. The number “1” in “5/1 ARM” means your interest rate could change each year after the first five years have passed.

Interest rates are based on an index, which is a benchmark rate used by lenders to set their rates. An index is based on broad market conditions and investment returns in the U.S.. Thus, your bank can adjust its interest rates at any point that the benchmark rate changes or if there are major fluctuations in the U.S. stock market.

What’s fixed? What’s adjustable?

Fixed-rate mortgages have the same interest rate for the duration of the mortgage loan. The most common loan periods for these are 15- and 30-year.

Because a 15-year fixed rate mortgage is, obviously, for a shorter term than a 30-year fixed rate mortgage, you will likely pay much less interest over time. However, as a result, you will have a higher monthly mortgage payment since the loan payoff period is condensed to 15 years.

Adjustable-rate mortgages like the 5/1 ARM loan mentioned above have a fixed interest rate for the beginning of the loan and then a variable rate after the initial fixed-rate period.

The chart below shows an example of the same house with three different types of mortgages.

As you can see below, the 15-year fixed rate mortgage has a lower interest rate, but a much higher payment. The 5/1 ARM has the lowest interest rate of all, but once that interest rate becomes variable, the lower rate is not guaranteed. This is one of the cons of a 5/1 ARM mortgage, which will be outlined in the next section.

Mortgage snapshot

Here is an example of three different types of mortgage payments for someone taking out a $200,000 mortgage. The chart below makes the assumption that the fictional person this is for has a high credit score and qualifies for good interest rates.

 

Interest Rate

Monthly payment

Principal Paid
After 5 Years

Total Interest Cost
After 5 Years

30-year fixed

3.625%

$912.10

$20,592.12

$35,046.14

15-year fixed

3.0%

$1,403

$57,987.88

$26,263.08

5/1 ARM

2.875%

$829.78

$22,595.20

$27,191.90

The pros and cons of 5/1 ARM mortgages

The pros

The biggest advantage of a 5/1 ARM mortgage is that interest rates are typically lower for the first five years of the loan than they would be with a typical 15- or 30-year fixed-rate deal. This allows the homeowner to put more of the monthly payment toward the principal balance on the home, which is a good way to gain equity in the property.

The 5/1 ARM mortgage commonly has a lifetime adjustment cap, which means that even though the rate is variable, it can never go higher than that cap. That way, your lender can tell you what your highest monthly payment will be in the future should your interest rate ever reach that point.

The cons

As mentioned above, the con of a 5/1 ARM mortgage is the whole “adjustable” component. Once you get past the five-year term, there will be uncertainty. Every year after the fifth year of your mortgage, the rate can adjust and keep adjusting.

There is a way around this. You can refinance your mortgage after the five years and secure a new mortgage with a fixed rate. But be warned: Refinancing comes with fees. You will have to calculate on your own whether or not the savings you derive from a lower payment for five years is worthwhile as you measure it against the cost of refinancing to a fixed-rate loan.

That’s why it’s important to know how long you want to live in your home and whether or not you’ll want to sell your home when you move (as opposed to, say, renting it out).

A 5/1 mortgage is right for …

“For certain people, like first-time homebuyers, 5/1 ARM mortgages are very useful,” Doug Crouse, a senior loan officer with nearly 20 years of experience in the mortgage industry, tells MagnifyMoney.

Here are the types of people who could benefit from a 5/1 ARM mortgage:

  • First-time homebuyers who are planning to move within five years.
  • Borrowers who will pay off their mortgages very quickly.
  • Borrowers who take out a jumbo mortgage.

Crouse explains that with some first-time homebuyers, the plan is to move after a few years. This group can benefit from lower interest rates and lower monthly payments during those early years, before the fixed rate changes to a variable rate.

Mindy Jensen, who is the community manager for BiggerPockets, an 800,000-person online community of real estate investors, agrees. “You can actually use a 5/1 ARM to your advantage in certain situations,” Jensen tells MagnifyMoney.

For example, Jensen mentions a 5/1 ARM could work well for someone who wants to pay down a mortgage very, very quickly. After all, if you know you’re going to pay off your loan early, why pay more interest to your lender than you have to?

“Homeowners who are looking to make very aggressive payments in order to be mortgage-free can use the 5/1 ARM” to their advantage, she explains. “The lower initial interest rate frees up more money to make higher principal payments.”

Another group that can benefit from 5/1 ARM mortgages, Crouse says, is those who take out or refinance jumbo mortgages.

For these loans, a 5/1 ARM makes the first few years of mortgage payments lower because of the lower interest rate. This, in turn, means that the initial payments will be much more affordable for these higher-end properties.

Plus, if buyers purchased these more expensive homes in desirable areas where home prices are projected to rise quickly, it’s possible the value of their home could soar in the first few years while they make lower payments. Then, they can sell after five years and hopefully make a profit. Keep in mind that real estate is a risky investment and nothing is guaranteed.

The 5/1 isn’t right for …

Long-term home buyers who plan to stay put for the long haul probably won’t benefit from a 5/1 ARM loan, experts say. “An adjustable-rate mortgage loan is a bad idea for anyone who sees their home as a long-term choice,” Jensen says.

Crouse echoes the sentiment: “If someone plans to stay in their home for longer than five years, this might not be the best option for them.”

Jensen adds that homeowners should consider whether or not they want to be landlords in the future. If you decide to move out of your home but keep the mortgage and rent a property, it won’t be so beneficial to sign up for a 5/1 ARM loan.

Questions to ask yourself

If, after reading this guide, you think a 5/1 ARM mortgage might be right to you, go through this list of questions to be sure. Remember, you can also consult with your lender.

  • How long do I want to live in this home?
  • Will this home suit my family if my family grows?
  • Is there a chance I could get transferred with my job?
  • How often does the rate adjust after five years?
  • When is the adjusted rate applied to the mortgage?
  • If I want to refinance after five years, what is the typical cost of a refinance?
  • How comfortable am I with the uncertainty of a variable rate?
  • Do I want to rent my house if I decide to move?

Hopefully these questions and this guide can aid you in reaching a sensible decision.

The post The 5/1 ARM Mortgage: What Is It and Is It for Me? appeared first on MagnifyMoney.

What to Do Before You Start Your Home Search

The process of buying a home can be nerve-wracking for some who have not been through it before, but with a little bit of preparation, you can help minimize some surprises along the way.

One important thing you can do as soon as you start thinking about buying a home is checking your credit report. Ideally, this should be done at least six months before purchasing a home in order to give yourself time to dispute information, if needed. It is important to know how your payment history is being reported by your creditors. And if you see any unfamiliar information, it’s important to know how to take action.

Consumers are entitled to a free copy of their credit report, from each of the nationwide consumer reporting agencies, once a year by visiting annualcreditreport.com.

What should you look for? Any information that might be inaccurate or incomplete. In the personal information section of your credit report, is your name (and any former names, such as a maiden name) listed accurately? Is your address up to date? Are there any addresses you don’t recognize? In the account information portion of your credit report, are all of the accounts listed complete and accurate? Are there any accounts that you don’t recognize? Do the balances appear accurate?

If you find information that appears inaccurate or incomplete, contact the lender or creditor associated with the account. You can also contact the nationwide consumer reporting agency that issued the credit report. If necessary, take steps to change some of your credit-based behaviors.

Here are some other items to include on your checklist as you prepare to buy a home:

— Gather any required documents you may need to apply for a mortgage. Tax returns, pay stubs and bank statements are among the ones you’ll need.

— Figure out how much home you can afford. There are a number of online mortgage calculators that can help. Remember a home’s purchase price is only part of the picture; you may also be responsible for a down payment, closing costs, taxes, insurance and other expenses. Learn your debt-to-income ratio and familiarize yourself with the requirements for loan qualification.

Buying a home is one of the most important – and largest – financial decisions you may make, and you owe it to yourself to prepare for it thoroughly and thoughtfully and hopefully smooth out any bumps in the road to home ownership.

10 States Suffering the Most From Foreclosures

Foreclosures declined for the 20th consecutive month year-over-year, but were still high in these 10 states.

Foreclosures in May were down 19% from the previous year, the 20th straight month of year-over-year declines, according to data released by ATTOM Data Solutions.

A total of 81,495 U.S. properties had a foreclosure filing in May, or one in every 1,636 units. Despite the declines, some states continue to struggle with foreclosures, particularly New Jersey, where foreclosure rates are high in communities like Atlantic City and Trenton.

A foreclosure can wreak havoc on a homeowner’s credit. You can see how your mortgage or foreclosure is affecting your credit score by checking your free credit report summary on Credit.com.

Here are the ten states with the highest foreclosure rates.

10. South Carolina

May 2017 Foreclosure Rate: 1 in every 1,186 housing units

Change from April 2017: Up 1.89% (was No. 8)

Change from May 2016: Down 20.41% (was No. 7)

9. Ohio

May 2017 Foreclosure Rate: 1 in every 1,176 housing units

Change from April 2017: Up 8.25% (was No. 9)

Change from May 2016: Down 16.84% (was No. 9)

8. New Mexico

May 2017 Foreclosure Rate: 1 in every 1,168 housing units

Change from April 2017: Up 73.50% (was No. 20)

Change from May 2016: Down 11.38% (was No. 10)

7. Florida

May 2017 Foreclosure Rate: 1 in every 1,140 housing units

Change from April 2017: Up 5.38% (was No. 7)

Change from May 2016: Down 35.00% (was No. 4)

6. Nevada

May 2017 Foreclosure Rate: 1 in every 1,108 housing units

Change from April 2017: Up 2.87% (was No. 6)

Change from May 2016: Down 22.76% (was No. 5)

5. Oklahoma

May 2017 Foreclosure Rate: 1 in every 1,081 housing units

Change from April 2017: Up 81.53% (was No. 19)

Change from May 2016: Up 63.84% (was No. 26)

4. Illinois

May 2017 Foreclosure Rate: 1 in every 1,057 housing units

Change from April 2017: Up 2.47% (was No. 5)

Change from May 2016: Down 16.90% (was No. 6)

3. Maryland

May 2017 Foreclosure Rate: 1 in every 1,006 housing units

Change from April 2017: Down 22.94% (was No. 3)

Change from May 2016: Down 30.80% (was No. 2)

2. Delaware

May 2017 Foreclosure Rate: 1 in every 753 housing units

Change from April 2017: Down 6.30% (was No. 2)

Change from May 2016: Down 4.18% (was No. 3)

1. New Jersey

May 2017 Foreclosure Rate: 1 in every 515 housing units

Change from April 2017: Up 9.29% (was No. 1)

Change from May 2016: Up 8.81% (was No. 1)

Image: mactrunk 

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Millennial Homebuyers Still Value a Personal Touch

Many millennials surprisingly opt for local, face-to-face interaction over online tools when buying homes.

All the hullabaloo about millennials coveting their social media accounts over face-to-face interactions holds untrue — at least when it comes to real estate, according to a recent survey conducted by the financial wellness community, CentSai. (Full Disclosure: I am the co-founder and president of CentSai.)

In fact, the 2,050 millennials surveyed are more traditional than previously believed when faced with buying a home. Three-quarters of respondents – age 18 to 34 – prefer to use a local real estate agent instead of an online one.

And 71% said they would choose a local lender instead of applying online.

This is in stark contrast to a 2015 Fannie Mae survey, which found 70% of homebuyers would like to obtain a mortgage online and 69% would like to complete a mortgage application online. (Your credit plays a key role in the terms and conditions of your mortgage. You can view two of your credit scores free on Credit.com to see where yours currently stands.)

Millennials Want Someone They Can Trust

Online mortgage lending and brokerage services are expected to transform home buying, but millennials surveyed said that – contrary to popular belief – they prefer local providers due to existing relationships and local knowledge.

“While sites like Zillow are perfect for looking online to size up the market, when it came to using a lender or actually buying a home, personal touch was essential,” said Keenan Spiegel, who bought his first home with his fiancée in Norwalk, Connecticut, last year.

Spiegel, a wealth management associate at Morgan Stanley and director of data visualization for CentSai, said he used a local real estate agent recommended by his family because he wanted to be sure he worked with someone he trusted.

And while getting approved for a mortgage online could have taken minutes, the couple preferred the experience of using a local, brick-and-mortar who was more hands-on and available when they called with an “endless” list of questions.

“We felt local lenders also know much more about the area they service and can provide a lot of information about the community where you’re about to buy a home,” Spiegel said. “We wanted to know about the quality of schools and the crime rates.”

Online Isn’t Everything Yet

Despite the purported savings and the ease of use, online providers may not yet be as big of a disruptor in the sector as one would expect.

That said, the vast majority of millennials surveyed (91%) said they would use an online site or mobile app to research neighborhoods and home prices and help identify the home that they may buy. But they cited various reasons for “going local” when it came to choosing their agent or lender – including personal touch and handholding, longstanding relationships and local knowledge.

A little more than half (56%) of the millennials surveyed plan to buy a home in the next two years, and for this group, online lenders likely need to provide an even more personalized experience to garner business.

The fear of missing out on valuable information that comes out of an in-person conversation still weighs on the millennial mind.

After all, buying a home is a major purchase, and despite all the bots and burgeoning artificial intelligence, the internet still has a way to go before it can mimic sitting across the table from a real estate agent.

Image: Steve Debenport

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The Fastest Way to Save for a House

There are a few ways to expedite that down payment.

Once you’ve decided it’s time to buy your own home, saving for that 20% down payment is step one toward doing it. Instead of waiting years, here are six ways to help you save up for that down payment in a matter of months.

1. Explore the Market

If you are saving money to buy your dream home, consider taking a detour through a lower-priced neighborhood first. Buying a lower-cost home means you won’t have to save as long for the down payment. As the home’s value goes up, you can use the equity you’ve built to help you get into a higher-priced home later on, particularly if you find a fixer-upper and you’re good at repairs.

2. Keep Your Priorities in Focus

While it may be tempting to put off other priorities when trying to save for an important goal, Kevin Gallegos, vice president of Phoenix operations at Freedom Financial Network, says paying the rent should always be your first priority. Next, Gallegos says, pay down credit card debt.

“Few, if any, investments will return as much,” he explains. Additionally, having more available credit on your card will improve your debt-to-income ratio and creates a financial cushion that you may need for unexpected costs after moving in to your new home.

3. Automate Your Savings

You can create a budget based on your current expenses to determine how much you can save each month. Once you have determined how much you can afford to save, automatically transfer that amount from your checking account to a savings account.

“Save before you ever have the money in your hand,” Gallegos says. “Record this expense like a bill every month.”

4. Generate More Income

To raise money quickly, Gallegos says it pays off to turn your spare time into money-making opportunities. Look around your apartment for unneeded items to sell online or have a yard sale.

“Even small proceeds can accumulate surprisingly quickly,” he says. “Maybe you have skills where you can turn a hobby into a part-time, money-making enterprise. Babysit, tutor, do yard work or other part-time work.”

5. Track Your Daily Expenses

Before pulling out your wallet, ask yourself how badly you need to buy something. For example, if there is free coffee at work, do you really need to go to the coffee shop every morning? Gallegos admits it sounds cliché to ask such questions, “yet this is just the type of disciplined act that will get someone on track to saving as much as possible as quickly as possible,” he says.

To further reduce daily spending, Gallegos recommends paying with cash instead of using a debit or credit card. “Many studies report that people spend up to 15 to 20% less when paying with cash,” he says.

6. Reduce Household Expenses

There are many ways to reduce monthly expenses at home that can help build your savings for a down payment more quickly. Washing clothes in cold water saves up to 90% of the energy expended in the washing cycle, notes Gallegos. Switching to cold water will directly reduce next month’s utility bill. Plus, speaking of laundry, skip the dryer. That’ll eliminate carbon emissions and help you bank away extra dollars, he adds.

You should also eliminate drafts in your home and turn the hot water temperature down to 120 degrees, which will save you money. Per EnergyStar.gov, a house’s water heater “can waste anywhere from $36 to $61 annually in standby heat losses and more than $400 in demand losses.”

Implementing only one of these ideas may not increase your savings significantly, but if you try a few of them, it can make a real difference to your savings account after a few months and get you on the right track to having enough for your new home.

[Editor’s Note: A good credit score can make buying a new home more affordable, too, since it’ll help you qualify for a low interest rate. You can see where your credit stands by viewing two of your scores for free on Credit.com.]

Image: monkeybusinessimages

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Time for Your Final Walk-Through? Make Sure You Have This Checklist

You're almost ready to close on your new home. Make sure you don't miss anything on your final walk-through with this handy checklist.

A few days before you sign the documents to finalize your purchase of a home, you’ll have the chance to take one last look through the property. The final walk-through is your last opportunity to confirm that the house is in similar or better condition than it was when it went under contract, and it’s also your chance to make sure no new issues have cropped up since the inspection.

What Should I Look for During My Final Walk-Through?

It has probably been weeks since you’ve seen the home and it’s exciting to walk through it again. You may be tempted to start mentally arranging furniture and picking out new paint colors while you’re there, but it’s in your best interest to put those feelings aside for now. This is your last chance to look for issues and work with the seller to address them before the home is officially yours. You should plan to spend 30 minutes to an hour walking through the home, paying careful attention to its condition.

In today’s competitive housing market, many buyers are waiving their home inspection to make a stronger offer. If that’s the case, it is especially important to focus on bigger red-flag items during your walk-through.

Before you head off to see your new home, it’s important you make sure you have your contract, inspection summary, a notepad, a camera, any photos you took of damage that needed repair, a cell phone and charger (to easily check that all electrical outlets are working) and, of course, your real estate agent. Make sure to coordinate with the sellers before deciding on a date. If you go too early they may not have finished moving out, and if you go too late, you may not have enough time to remedy any large issues that you spot.

Here are the big things to look for when making your final walk-through.

  • Are all agreed-upon repair items completed? (Ask to see receipts.)
  • Has the previous owner removed all debris, garbage and unwanted items? (Keep in mind, the house will likely not be professionally cleaned and will need a once-over when you move in.)
  • Has the yard been maintained?
  • Are all agreed-upon appliances still in the house and are they working properly?
  • Does the home still contain all furniture included with the purchase?
  • Are there any major holes or damages as a result of the previous owner moving out? (Normal wear and tear like nail holes can be expected.)

Here are some other things to look for once you have checked the above.

  • Do all lights and switches still work? (Keep in mind the home has likely been vacant for 30 or more days. If light switches don’t work, it could be due to burnt-out bulbs, which you’ll likely need to replace yourself.)
  • Do all power outlets work? (Use your cell phone and charger to quickly test whether outlets work).
  • Are appliances in working order?
  • Do toilets flush?
  • Do sinks, showers and tub spouts run? Can you spot any leaks?
  • Is there hot water?
  • Do sink and tub drain stoppers function?
  • Do all windows and doors open and close smoothly? And are all screens present and attached properly? Be sure to check that window latches and door locks are working properly.
  • Do the heat and air conditioning work?

And remember, your lender might run a final credit check before you close. You should keep an eye on your credit during this critical time. You can view a free credit report snapshot, which is updated every 14 days, on Credit.com.

Image: andresr 

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How to Write an Undeniable Offer Letter for Your Dream Home

Want to make sure you get the home you love? Open up with a heartfelt letter to the seller.

Buying a home in a competitive market means you need to have all your ducks in a row. You can be successful by putting your best foot forward before the starting gate. One way to spruce up your offer is to write a love letter to the seller.

All sellers have different reasons and motivations for selling their home. A major life event may have caused them to rethink their life and selling the house makes the most sense. They may have found their dream home or a better rental and need to sell the one you are looking at.

No matter what has happened, the dollar amount you are offering to purchase their home is going to carry the most significance to the majority of sellers. Making a strong offer with the guidance of your real estate agent and having a solid mortgage pre-approval in place is critical for success. Those are the key components required to make sure your chances increase for getting an accepted offer. Still, a stellar offer letter can break a tie between two identical offers — or even sway the owner your way if someone slightly bests your bid. With that in mind, here’s how to craft a killer offer letter for your dream home.

1. Write the Letter Yourself

This letter should come from you, not your real estate agent. The agent cannot convey the emotional attachment you feel toward the home the way you can. If your agent wants to write a companion letter or character profile, that’s fine, but a love letter that comes directly from the prospective buyer will be most meaningful. This letter should be impactful and compel the seller to choose you.

2. Explain Why You Want the Home

The reality is that you do not know the reason why they are selling their home (though your real estate agent may be able to supply some clues) so a good strategy is to give them the reason you want it. Write a letter to the seller appealing to their emotional side along with their financial interest in your offer. Write a genuine letter about why you are interested in buying their home specifically. What about it calls to you? Do you see your family living there for a long time?

3. Be Specific

If you really liked the way the backyard “felt” and you can see your kids playing there or getting married under a well-groomed tree, put it into words. Make the sellers see you in their home. It sounds sappy, but it can appeal to the right people. A letter can evoke pride for a seller in their home and can give them the satisfaction of being able to provide a home for a young family that will create more happy memories there.

4. Get Personal 

Talk about your family. Use this letter as a way to introduce yourself and tell the seller about your long-term goals. Let them know if you’ve been raised in the area and share with them why you think their home is the fit for you and yours.

5. Assure Them You’re a Strong Buyer

A seller will want to know a buyer can make good on their offer, so be sure to let them if you have a steady source of income, what you do for a living and, even, how solid your credit score may be. (You can see how your credit is doing throughout the homebuying process by viewing two of your free credit scores, updated every 14 days, on Credit.com.)

One additional thing you should consider is having your lender call the listing agent in order to confirm your ability to purchase and willingness to perform. This is a bonus that can help push your offer over the top as this confirmation proves to the listing agent and sellers that you are serious and well-qualified. Communication in every real estate transaction is critical and this proactive approach reduces the amount of vetting that the listing agent has to do on their offers.

What’s in a Offer?

Remember all those ducks we mentioned earlier. In addition to your love letter, your offer to purchase someone’s home might include:

  • A cover letter from your agent explaining who you are and why they brought you to their home
  • The terms (total offer price, down payment, etc.) under which you would purchase their home.
  • In addition to that personal and detailed letter explaining why you would be a good fit for their home, you may also want to include a photo of you and your family.
  • A mortgage pre-approval letter from your lender showing you are dedicated to buying their home.

Keep in mind, a stellar offer letter is just one small part of the process. You can find 50 other steps house hunters can take to get ready for homebuying season here.

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10 States Plagued By Foreclosure

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Remember: Keep Your Tax Returns If You’re Looking to Buy a Home

If you were planning to buy a home or refinance one you already own, you can expect to encounter a lot of paperwork. But here’s one thing you probably didn’t know: Tax returns aren’t always required.

If you are a W-2 wage earner, there is a smaller chance you’ll need to provide tax returns than if you’re self-employed. If you’re self-employed, the only way a lender can determine your income is by examining your tax returns. As a self-employed worker, these documents show how much you took home versus your net income. There are some situations where you can get away with using a year’s worth of tax returns, such as when you transition from being full-time employee at a company to being self-employed.

Automated Underwriting Findings

Mortgage lenders will ask for two years of tax returns, plus two years of W-2s and pay stubs from the last 30 days. Every mortgage in America sold on the secondary market is run through automated underwriting, software systems that crunch data and let lenders know your risk in terms of repaying the loan.

If you are a W-2 wage earner and the automated underwriting findings do not require tax returns, you may not need to provide returns at all in order to close on a home.

To be clear, we are discussing the average W-2 wage earner. Any of the following could trigger needing two years of tax returns despite your employee status:

  • Rental income
  • Social Security income
  • Pension income
  • Schedule C income beyond your normal W-2 job
  • Partnership in a business or another entity

Other Things to Keep in Mind

When you apply for a loan, it’s generally a good idea to provide two years of tax returns, two years of W-2s and the 30-day pay stubs all lenders require. However, there is a saying in mortgage lending that applicants should only provide “what is needed.” Providing only what’s asked for can go a long way, as there are fewer documents to scrutinize. That said, automated underwriting dictates what documentation you must provide to obtain financing.

Some banks also have additional requirements, so even if your loan does not require tax returns, their individual banking policies might. Such requirements are due to the bank’s relationship with Fannie Mae and Freddie Mac, or its particular appetite for risk. A good rule of thumb is to provide the bare bones requirements so there are no questions as to whether you qualify.

The key is to work with a mortgage lender who has a common sense approach to financing rather than one who promises ultra-low rates but is so risk-adverse that you are continuously asked to furnish more paperwork and your loan never ends up closing escrow.

Remember, a good credit score can help you secure an affordable mortgage. As such, it’s a good idea to see where you stand before you start applying. You can check your credit scores for free each month on Credit.com.

More on Mortgages & Homebuying:

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