Buying A Home in Farmington Hills MI? Getting A Pre-approval is Key

Buying A Home in Farmington Hills MI? Getting A Pre-approval is Key

Buying A Home in Farmington Hills MI? Getting A Pre-approval is Key: You may have been told that it’s important to get pre-approved at the beginning of the homebuying process, but what does that really mean? And why is it so important? In today’s market, with rising home prices and high buyer demand, it’s crucial to have a clear understanding of your budget and stand out as a serious homebuyer to sellers.

Once you get pre-approved for a home loan, the seller knows you’re a better prospect than someone who hasn’t begun negotiating with a lender. Pre-approval is also helpful when you’re hunting for a house. If you have a pre-approval amount of $240,000, for example, you know not to waste your time shopping for a $400,000 home.

Is Pre-qualification the same as pre-approval?

A pre-qualification is a good indication of creditworthiness and the ability to borrow, but a pre-approval is the definitive word. A mortgage pre-qualification is usually based on an informal evaluation of your finances. You tell the lender about your credit, debt, income, and assets, and the lender estimates whether you can qualify for a mortgage and how much you may be able to borrow.

Pre-approval is the next step if you get a thumbs up during pre-qualification. During the mortgage pre-approval process, a lender will pull your credit report and review documents to verify your income, assets, and debts.  If you are confident about your credit and financial readiness to buy a home, then you might skip the pre-qualification step and go straight to the pre-approval and start shopping for a home. 

Mortgage pre-approval

A mortgage pre-approval is an offer by a lender to loan you a certain amount under specific terms. Pre-approval is not a guarantee you will be given a loan and the mortgage can still be denied. A home appraisal must be completed before a loan can close to ensure you aren’t paying more for the home than it’s worth. 

Also, the lender’s offer may not stand if your financial situation changes between pre-approval and closing. Keep in mind that it can take several days or longer to get preapproved for a mortgage. The timeline varies by lender and how quickly you are able to provide the lender with the information it needs, including proof of your income and assets.

When you are ready to make offers, a seller often wants to see a mortgage pre-approval and, in some cases, proof of funds to show that you’re a serious buyer. In today’s competitive market, sellers have an advantage because of intense buyer demand and a limited number of homes for sale; they may be less likely to consider offers without pre-approval letters.

According to the National Association of Realtors (NAR), homes are receiving an average of 5.1 offers for sellers to consider. As a result, bidding wars are more and more common. Pre-approval gives you the advantage you need if you get into a multiple-offer situation, and these days, it’s likely you will.

When multiple buyers have made legitimate offers for the same Farmington Hills MI property, the seller can choose which one they want to accept. A pre-approval letter indicates to both real estate agents and home sellers that you’re financially able to buy a home, and it’s expected that a pre-approval letter will accompany any offer you make.

How to get pre-approved for a home loan

Start by requesting copies of your credit reports. Dispute any errors that might be causing your score to be lower than it should be. If you find delinquent accounts, work with creditors to resolve the issues before reaching out to a lender for mortgage pre-approval.

A credit score of at least 620 is recommended, and a higher credit score will qualify you for better rates. Generally, a credit score of 740 or above will enable most borrowers to qualify for the best mortgage rates. 

Calculate your debt-to-income ratio. Your debt-to-income ratio, or DTI, is the percentage of gross monthly income that goes toward debt payments, including credit cards, student loans, and car loans. Lenders prefer borrowers with a DTI of 36% or below, including the mortgage, though it can be higher in some cases.

Gather income, financial account, and personal information such as Social Security numbers, current addresses, and employment details for you and your co-borrower (if you have one). You will also need bank and investment account information and proof of income. 

Documents you will need to get a mortgage pre-approval letter include your W-2 tax form and 1099s if you have additional income sources and pay stubs. Two years of continuous employment is preferred, but there are exceptions.

Self-employed applicants will likely have to provide two years of income tax returns. If your down payment will be coming from a gift or the sale of an asset, you’ll need a paper trail to prove it.

Understand what the lender is offering you. Make sure you understand all the terms of your mortgage. If you don’t know what something means, the lender must explain it to you. The Truth in Lending Act requires all lenders to provide you with comprehensive loan cost information so you can comparison shop.

Comparing offers from multiple lenders can help you compare rates and fees and save you thousands of dollars over a 30-year mortgage. Going through the mortgage pre-approval process shouldn’t hurt your credit score. FICO, one of the largest U.S. credit scoring companies, recommends confining those applications to a limited time frame, such as 30 days.

Time your pre-approval. A pre-approval is typically good for 90 days. Wait until you’re ready to start hunting for your house before you request a pre-approval, otherwise, you are wasting both your time and that of the lender who’s preapproving you.

The bottom line

Every step you take to gain an advantage as a buyer is crucial in a market that’s constantly changing. Interest rates are low, prices are going up, and lending institutions are regularly updating their standards.

It is important to have the information, resources, and the right team of professionals such as a loan officer and a trusted Farmington Hills MI real estate agent to help ensure that you take the right steps. If you’ve been trying to decide if now is the right time for you to buy a home, let’s connect to discuss your options.

Partner with top-rated Farmington Hills MI REALTOR® – Tom Gilliam

With a passion for real estate, Tom Gilliam has been serving Farmington Hills and the surrounding Oakland County MI area for nearly two decades. Tom is known for his friendly demeanor, dedication, and professionalism. He will be able to quickly ascertain your needs and goals and create a plan of action based on your specific criteria. 

Tom’s clients appreciate his honesty and transparency and feel it helps them as they make important real estate decisions. He understands how important good communication is to every transaction and is available for his clients whenever they have questions or concerns, promptly returning all phone calls, texts, and emails.

Having someone like Tom by your side to advise and guide you means there is one less thing you need to worry about. He will protect your interests, advocate for you, negotiate on your behalf, and go the extra mile to ensure the best results possible. If you are interested in buying or selling Farmington Hills real estate or homes in the surrounding area, please give Tom Gilliam a call at (248) 790-5594 or you can reach him by email.

Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Direct: 248-790-5594
Office: 248-737-6800
Email: Homes2MoveYou.com
License #314578 

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Mortgage Pre-qualification, Pre-approval, and Approval Process

Mortgage Pre-qualification, Pre-approval, and Approval Process

Mortgage Pre-qualification, Pre-approval, and Approval Process  

If you are ready to make your dream of homeownership a reality, then you have probably already heard that you should consider getting prequalified or preapproved for a mortgage. It’s important to understand what each of those terms means. When you are working toward a major life goal like buying a home, you want every advantage and tool in your homebuying arsenal. 

In this article, we will discuss the mortgage prequalification, preapproval, and approval process and what to expect from all three:

Mortgage Pre-qualification 

When you pre-qualify for a home loan, you are getting an estimate of what you might be able to borrow. Many first-time homebuyers find that getting prequalified is helpful, especially when they are establishing their homebuying budget. Pre-qualification also provides the opportunity to learn about different mortgage options you may not know about and work with a lender to identify the right fit for your individual needs and goals. 

Keep in mind that you may qualify to borrow more money than you are comfortable spending on a home. But that doesn’t mean you have to spend more. It’s always a good idea to limit your home search to houses priced at an amount you can comfortably afford and obtain a mortgage amount that easily fits into your overall budget. 

Mortgage Pre-approval 

Pre-approval is as close as you can get to confirming your creditworthiness without having a purchase contract in place. Getting preapproved is a smart step to take when you are ready to put in an offer on a home. It shows sellers that you can secure a mortgage, which makes it more likely that you will complete your purchase of the home. Because you have had your finances and creditworthiness verified, sellers will be more likely to consider you a serious buyer.  

With a pre-approval, you will complete a mortgage application. The lender will verify the information you have provided and perform a credit check. If you are, in fact, preapproved for a home loan, you will receive a pre-approval letter, which is an offer (but not a commitment) to lend you a specific amount of money, which is good for 90 days. Lenders will look at every detail of your finances when granting pre-approval. Be prepared to answer lender questions as soon as they come up.

How Long It Takes To Get Pre-qualified or Pre-approved 

Pre-qualification and pre-approval can take different amounts of time. Pre-qualifying is a quick process and can actually be done online. You may even get results within an hour. Since you will need to supply more information for a mortgage pre-approval, it is likely to take more time. You should expect to receive a pre-approval letter within 10 business days after you have provided all of the information requested by your lender.  

Information Needed to Get Pre-qualified and Pre-approved

The information you will need to provide to get pre-qualified for a mortgage:   

  • Basic income information
  • Credit Check
  • Basic information about bank accounts
  • Downpayment amount and desired mortgage amount
  • No tax information required

 The information you will need to provide to get pre-approved for a mortgage:

  • Copies of pay stubs that show your most recent 30 days of income
  • Credit check
  • Bank account numbers/two most recent bank statements
  • Downpayment amount and desired mortgage amount
  • W-2 statements 
  • Signed, personal and business tax returns from the past two years

Pre-qualification Vs. Pre-approval Comparison

  PREQUAL  PREAPPROVAL
Benefits You can start house-hunting knowing how much you might be able to borrow You’ll be ready to make an offer with confidence—and gain a competitive advantage
Process Provide basic information to a lender and quickly get a prequalification amount After submitting documentation to a lender, you should receive a decision within 10 business days
Documentation Answer questions for this process, plus a credit check Provide proof of financial details, plus a credit check

 Factors Involved with Getting Approved for a Mortgage 

Even if you have been pre-approved for a mortgage, it isn’t an automatic final approval. Pre-approval is only the first step in the loan process and your underwriting can still be denied. Being pre-approved will make sure you have a good credit score, verify your income, and assure that you will be able to pay back the loan amount. 

Once you’ve been pre-approved, your file must then go to the underwriter who will take a much deeper look into your financial stability.  The underwriter will review your loan scenario and supporting documentation to determine whether you qualify for the loan, with the following basic criteria in mind:

  • Your ability to repay the loan – Is your income enough to cover the new mortgage payment and all your other monthly expenses? Lenders use your debt-to-income ratio (DTI) and most lenders want your debt-to-income ratio to be 36% or less.
  • Your likelihood to repay the loan. Your payment history and credit score are indicators to lenders of your likelihood to make payments in the future.
  • The home’s value – The underwriter will look at the value of the home you are purchasing to verify that it meets or exceeds the purchase price and whether the loan-to-value ratio (LTV) fits within the loan program guidelines. With a conventional loan, most lenders require a loan-to-value ratio of no more than 80-95% (The higher your home’s value and the less you owe on it, the lower your LTV).
  • The source and amount of funds for your down payment – You will typically be required to pay private mortgage insurance (PMI), which increases your monthly mortgage payment if you have a down payment of less than 20%. The underwriter will review your information to estimate whether you have enough money to cover closing costs. Lenders also typically require reserves to cover your mortgage payment in case of emergencies or unforeseen events.

As you move forward, your income, debt, credit history, down payment, savings, home value, and loan program guidelines will all play a role in whether your mortgage application is approved.

Partner with Top-rated Farmington Hills MI REALTOR® -Tom Gilliam

2020 Best of Farmington Hills REALTOR - Tom GilliamWhether you are interested in buying a home in Farmington Hills, MI, or its time to list your current property, experience matters most in a changing market. With over 20 years of local experience, Farmington Hills REALTOR® – Tom Gilliam offers in-depth local market knowledge and access to the most up-to-date listings.

Known for his professionalism and care for every detail, Tom is an expert at uncovering the perfect home for his clients’ lifestyle needs in the right Farmington Hills neighborhood or community.

Search Farmington Hill MI homes for sale

For sellers, Tom will create a comprehensive marketing plan that exposes your home to the public as well as to other real estate agents through the Multiple Listing Service (MLS), other cooperative marketing networks, open houses for agents, and so on.

Your listing will appear on all the most popular real estate sites where buyers spend hours a day looking at homes such as Realtor.com, Zillow, Trulia, REMAX, Redfin, and dozens of others. Your property will also be featured on Tom’s own highly-trafficked website Homes2moveyou.com. You can be assured that your home will get sold quickly and for the highest market price.  

Tom works very hard for his clients. He will protect your interests, advocate for you, and be your trusted guide and advisor throughout the home buying or selling process. If you or someone you know is interested in Farmington Hills MI real estate, please give Tom a call today at (248) 790-5594 or you can reach him here.

Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Direct: 248-790-5594
Office: 248-737-6800
Email: Tom @ Homes2MoveYou.com
License #314578

Buying a Home in Farmington Hills MI: 5 First-Time Homebuyer Mistakes to Avoid

Buying a Home in Farmington Hills MI: 5 First-Time Homebuyer Mistakes to Avoid

Buying a Home in Farmington Hills MI: 5 First-time Homebuyer Mistakes to Avoid – Having a home to call your own is the “American Dream.” Whether you’re planning to be there for four years or forever, buying a home will be one of the most important personal and financial decisions as well as one of the largest purchases you’ll ever make. Hence the reason why it’s important to know about the common pitfalls that many first-time homebuyers make so you can avoid them.

Here’s a list of typical home-buying mistakes to avoid when buying a home in Farmington Hills MI, which will save you some significant stress on your home buying journey:

1). Not Partnering with A Qualified REALTOR®   

Since finding homes online is fairly easy these days, you may even question whether or not you need to hire a real estate professional. However, the home buying process includes a lot more than just finding a home that you like in the neighborhood you want to live in. It also involves hundreds of details that need to be planned for and navigated in order to achieve a successful transaction. In addition, you’re probably not even seeing the most accurate and updated listings online. A home you fell in love with online today may already be under contract, which is an often occurrence.  

A qualified Farmington Hill MI REALTOR® like Tom Gilliam is an invaluable resource. He is aware of new inventory as soon as it becomes available, ensuring that you have immediate access to the best homes and securing an offer. He is also highly knowledgeable about the area where you want to move and can inform you about the different neighborhoods and communities, the types of homes and features offered, the builders, HOAs, school districts, surrounding area amenities, local community developments, and much more.

An experienced and skilled agent like Tom, who is an area expert and transaction-management ace, will keep you informed every step of the way, protect your interests, advocate for you, and handle the maze of transaction details for a smooth and successful outcome.

2). Buying More House Than You Can Afford  

Although this one may seem obvious, it is a common pitfall among many first time homebuyers. Taking on more mortgage than you can afford is like taking a sledgehammer to your budget. You’ll end up wiping out all your other financial goals and struggle just to pay your basic utilities. Before you begin your home search, you’ll want to figure out exactly how much house you can comfortably afford and still have a life.

A good rule of thumb is that your house payment, including principal, interest, property taxes, homeowner’s insurance, private mortgage insurance (PMI), and homeowners association (HOA) fees (depending on your situation), shouldn’t exceed 25% of your monthly take-home pay.  Also, when buying a home, you’ll typically need enough to cover six factors: the down payment, closing costs, moving expenses, repairs and maintenance, the first few months’ mortgage payments, and your emergency fund.

These factors, when added together, will allow you to calculate a ballpark figure for how much you’ll need to save up to be able to afford a home. If you do the math and would be barely able to scrape by, consider holding off until you’re in a more stable financial position.

3). Not Getting Pre-Approved for a Loan

If you start home shopping before you get pre-approved for a mortgage loan, you could get a nasty surprise when you apply for a loan and discover you qualify for much less. It can be tempting to pull up listings online and schedule appointments to see your favorite choices before filling out a mortgage application. But if you don’t already have a preapproval letter in your pocket, that can be a mistake.

A mortgage preapproval helps you understand how much house you can afford before you begin your home search, makes you more attractive to sellers and alerts you to problems that may affect your ability to actually get a loan. To get preapproved, you’ll need to provide the lender with documents they will use to verify your personal, employment, and financial information.

Keep in mind that a lender might approve you for a loan amount that’s realistically more debt than you can comfortably carry month-to-month. Consider that you’ll need to pay homeowners’ insurance, taxes, and possibly flood insurance on your new property or PMI on your loan.  

4). Not Understanding Your Down Payment Options

One of the biggest headaches and obstacles for many first-time homebuyers is the downpayment. – the money that you contribute to the total cost of the purchase. If you don’t have a certain amount to put down on your home loan, you might find yourself paying private mortgage insurance (PMI) on the lifetime of the loan.

Depending on your credit score, the bank, and other factors, PMI can cost between 0.5 percent to 1 percent of the total loan amount. Most banks require at least a 20 percent down payment before they will waive the need for PMI on the loan. For a $300,000 home, you would need a $60,000 downpayment to avoid PMI. So, how much should you save for a down payment?

Typically, it’s recommended that you have at least 20% of the total house price to avoid paying PMI, a type of insurance that protects your lender from losing money in case you can’t make your mortgage payments. However, there are loans that allow you to put as little as 3 percent down on the home which is more attainable, especially for first-time homebuyers. Some government organizations offer free down payment grants or loans to qualified buyers.

Depending on your age, income level, credit score, and other factors, you could qualify for free money to wrap into your down payment; a full rundown of programs is available at downpaymentresource.com. For example, USDA loans and VA loans each have a very specific set of criteria you need to meet in order to qualify for a zero-down mortgage.

5). Not Waiting to Make Other Big Purchases Before Closing 

You’ve been pre-approved for your first mortgage loan, you’ve found the perfect home, your offer has been accepted, the home inspection passed and your loan officer has locked you in at a favorable rate. All that being said, its not the time to go out and buy yourself a big screen TV or furniture for your new house just yet because you won’t officially be a homeowner for another 30 days, give or take.

Even if your lender has approved your mortgage loan, they will check your credit again just before your closing date, prior to granting you the funds. You want to keep your finances stable and opening a line of credit or making a big purchase after mortgage approval is a common mistake. A change in your credit score can actually make you ineligible for the loan, so wait until after closing to make any other financial moves, just to be on the safe side. 

The Takeaway

If this is your first experience buying a home in Farmington Hills MI or it’s been many years since your last home purchase, knowledge is key. Along with knowing what issues to avoid, it’s important to glean first-time homebuyer tips so you know what to expect and what questions to ask your agent.

Partner with Top-rated Farmington Hills MI REALTOR® -Tom Gilliam  

2020 Best of Farmington Hills REALTOR - Tom GilliamA top-rated Farmington Hills and Oakland County MI real estate agent like Tom Gilliam can show you more properties and save you thousands of dollars when buying a home. You need an agent who knows the area, processes a vast network of local connections, and has the skills to negotiate like a pro.

From first-time homebuyers to multi-million dollar investors, Tom continually strives to provide top quality service for his clients. With access to the most up-to-date MLS listings for Oakland county MI properties, Tom is able to match your lifestyle needs with the perfect home.

If you are ready to list your current property, Tom has the experience and skills necessary to handle the sale and marketing of your home for the optimum results. Tom employs the latest technology to deliver massive exposure that will drive mega-response from qualified buyers. Tom also partners with the most talented home stagers to ensure that your home is thoughtfully staged to highlight its features and amenities.

Search the MLS for Properties in Farmington Hills

With over 25 years of local real estate experience, Tom will protect your interests, advocate for you, and go the extra mile to ensure a smooth and successful transaction. If you or someone you know is interested in buying or selling real estate in Farmington Hills, MI, or in surrounding Oakland County. please give top-rated Farmington Hills MI REALTOR® – Tom Gilliam a call today at 248-790-5594 or you can get in touch here.

Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Call: 248-790-5594
Office: 248-737-6800
Email: Tom @ Homes2MoveYou.com
License #314578

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