Once you’ve found a Realtor to represent and advise you on what is going to be the biggest financial transaction you ever make, step 2 to buying a home is to get preapproved by a mortgage lender. As Realtors, we won’t put an offer in on a home for a client unless he or she has been pre-approved. In addition, it’s important that you have an understanding of how much you can comfortably afford to spend on a home, what your monthly payments will be, what interest rate you qualify for, and how much you’ll be paying each month in taxes, etc. We don’t want you to fall in love with a home that you cannot afford. We have seen this happen before, and it is truly heartbreaking, so we try to avoid that.
Having a good mortgage lender is a crucial part of ensuring a smooth transaction. Working with a bad mortgage lender can make the process a living hell for everyone involved and put your purchase in jeopardy of not closing on time or at all. You also might end up regretting the lender you chose for years if you end up paying a higher interest rate than you should have. You could also lose out on your dream property because your mortgage lender was disorganized and couldn’t get you fully approved during underwriting, etc. That’s why it’s important to work with the best. We recommend:
Blake Overton
Gershman Mortgage
(319)-538-4647
Kendall Roberts
Guild Mortgage
(515)-681-1869
Shannon Thome
Fortress Bank
(515)-210-9244
Andy Newman
Bank Iowa
(641)-295-7195
Paperwork You Need To Gather
Each lender has slightly different requirements regarding what documentation they need from you for the preapproval process, but in general, expect to provide the following items:
- A completed application. The lender will provide this to you directly.
- The two most recent months (or a quarterly statement) of any asset information listed on the application. Generally, the lender needs checking, savings, 401k, mutual funds, individual stock accounts, IRA’s, brokerage accounts, etc.
- Past two pay stubs if you are a W2 employee
- Past two years’ worth of W2s (ie., 2020 and 2021 W2)
- Past two years’ worth of US Tax Returns (ie., 2020 and 2021 Federal Tax Returns)
- Past two years' worth of Corporate Tax Returns (if self-employed and you own over 25% of the company)
Getting a Pre-Approval Letter
Generally, once you submit the above items to your lender, you should receive a pre-approval letter within 2-3 business days. The lender may ask for additional documentation. They are not trying to be difficult by asking for additional documentation; rather, after the housing bubble burst, underwriters became much stricter regarding the loan approval process, so a lot more documentation is needed today than it was 10 years ago. This seems super personal and invasive at times, but it is part of the process in getting you approved. In addition to receiving a pre-approval letter, which shows the amount you can afford to purchase, you should ask your lender to show you what that preapproval amounts into in terms of a monthly mortgage payment plus any PMI, taxes, and insurance. That way you can make sure you are comfortable with what your monthly housing payment will be at that pre-approval letter. Once you’ve received your pre-approval letter, forward it to us for your file so we can have it when we are ready to submit an offer.
Ask About Free Money
Iowa offers several grant programs for home buyers where the state of Iowa will literally give you free money to put towards your down payment or closing costs. If any of the programs interest you, talk to your mortgage lender to see if you qualify. There are qualification requirements for these programs.
Get a Loan Estimate and Understand Your Closing Costs
In addition, mortgage lenders are required to provide you with a Loan Estimate (LE)within 3 days of receiving your pre-approval. The LE provides an estimate of the closing costs you’ll need on top of your down payment and shows exactly what fees the mortgage lender is charging you. Make sure you understand these fees. Generally, we estimate the loan closing costs to be approximately 2.5% of the purchase price of the property. Your mortgage lender can provide you with more detailed estimates based on your exact pre-approval price. Remember, these closing costs are due at closing (except for the appraisal and inspection fees, which are due on the day those services occur) and are on top of your down payment. Therefore, if you’re buying a $500,000 property and putting down 20% towards the loan, you’ll need to have $112,500 cash available at closing ($100,000 for your down payment and approximately $12,500 for the closing costs).
Questions about the pre-approval process? Just call us at (515)-249-5560 or email us at [email protected]
