The Mortgage Porter

Having a Hard Time Finding the "Perfect" Home in Seattle? Consider an FHA 203k Rehab Loan!

UPDATE: We currently do not offer 203k loans.

Some of my Seattle area clients have been searching for the "just right" home for months.  With a good portion of the available inventory being bank owned, many of the homes have been left in less than desirable condition or perhaps are overdue for a little TLC. If you've found a home that needs some work that's located in a neighborhood you'd like to call home, an FHA 203k rehab loan may be worth your consideration.

FHA 203k loans allow a borrower to finance almost anything to improve the home (exceptions are luxury items, such as swimming pools, hot tubs, fire pits, etc.). Improvements that are allowed are:

• structural alterations and reconstruction
• modernization and improvement to the home's function
• elimination of health or safety hazards
• changes that improve appearance and eliminate obsolescence
• reconditioning or replacing plumbing; repairing or installing a well and/or septic; repairing/replacing electrical issues
• adding, repairing or replacing roofing, gutters and downspouts
• adding or replacing floors and/or floor treatments
• major landscape works and site improvements
• enhancing accessibility for a disabled person
• making energy conservation improvements
• room additions

The cost of the improvements are added to the sales price of the home.  For example, if you find a fixer with a sales price of $250,000 and it needs $40,000 in repairs or improvements, you can finance up to 96.5% of $290,000 (FHA loans currently have a minimum down payment of 3.5%).  

Many home buyers might buy a "fixer" knowing they can do a lot of the work "down the road" or as they can afford it.  With an FHA 203k rehab loan, the work is done after closing and financed with the "purchase money" first mortgage.  This means you'll have the benefit of current low FHA rates instead of financing improvements with a Home Depot or Lowes credit card, not to mention the income tax benefits.

I recommend starting with a prequalification to see how much mortgage payment you are comfortable with and that you qualify for.  If you're buying a home anywhere in Washington, I can help you.  Once you know what you qualify for, you can start shopping for homes that you'd like to improve (it doesn't need to be a foreclosure or a total fixer). By the way, if you need a recommendation to a real estate agent, please let me know.

Once you've found a home that you're interested in, it's not too early to meet with a HUD approved consultant for a feasibility study. In fact, you can do this before you're in contract.  This step is very important.  The consultant will help you identify what items HUD will require to be repaired to meet lending standards and make recommendations for improvements and consider your "wish list" for items to be done to the home.  You also want to make sure not to "over improve" your home for the area as the finished product will need to appraise for the adjusted sales price (sales price plus improvements and cost of the 203k loan).  A qualified consultant can help guide you through this part of the process and I'm happy to recommend someone if you're buying a home anywhere in Washington.

FHA 203k loans tend to take a little longer to process and close than a standard FHA transaction. The total loan amount (sales price plus improvements) is limited to FHA loan loans which is currently $567,500 (until October 1, 2011) in King, Pierce and Snohomish Counties. 

Questions? Please contact me - your next home with your new kitchen is waiting for you. Mortgage Master Service Corporation is a Direct Endorsed HUD approved lender.

My thoughts on NAR's Pending Home Sales for April: Mortgage Guidelines are NOT "Excessively Tight"

This morning NAR released the Pending Home Sales report which revealed that "contract signings, dropped 11.6 percent in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit." Pending home sales is a forward indicator since it's reporting on contracts that are signed but not yet closed.

Lawrence Yun, NAR's Chief Economist states that part of reason for the larger than expected drop is due to how difficult it has become to obtain a mortgage. 

“No doubt the continuing excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow...We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings....” 

It's my experience that it's not that difficult to obtain a mortgage and underwriting guidelines are not "excessively tight".  The difference between qualifying for a mortgage now and pre-2007 is that borrowers must now prove (provide supporting documentation) that they meet program guidelines.  Stated income, low or no-doc loans are gone.  

• Every penny of your down payment and funds for closing must be documented with complete bank statements (all pages) or other asset accounts being used.
• Large deposits on your bank statements must be sourced (more documentation) to show where the funds came from.
• Employment must be steady.  Buyers are not required to have been on the same job for the past two years...heck, they can be out of college (may count as employment) and there may be some unemployment periods...it needs to make sense and be documented.
• Income must be steady.  If a potential borrower is not paid salary (hourly, commission, bonus, self-employed, etc.) they need to show they've received this type of income for the past two years.
• Borrowers must be able to afford their home based on their income and debts. Some debts where payments are deferred, like student loans, are factored into your debt-to-income ratios...one day, you are going to have to make payments on it!  
• Borrowers who take out new debts before funding (closing) of their loan, may find they no longer qualify for their mortgage.  Doesn't this make sense? Yes, home buyers may need new a washer and dryer...however if they're borderline with their credit or pushed with their qualifying ratios, they risk blowing up the purchase just before closing due to "LQI".  Home buyers need to make sure they honestly reflect the loan application from the start of the transaction to finish.

Okay, I'll admit that credit scoring has become tougher. Pre-2007, a person with 600 credit scores (or lower) could qualify for a mortgage.  Now you pretty much need a mid-credit score of 630 or higher for most loan programs.  And their are price hits (risked based pricing) that are factored into interest rates based on loan to value and credit scores.  Credit scores are reflective and borrowers can work on improving their credit scores (and should).  

Income is also scrutinized more than before with 4506Ts being required on every transaction. If your income is higher on your loan application than what you claim on your tax returns, be prepared...you'll be providing additional documentation (tax returns) even if you're paid a salary and your income may be adjusted lower.

Here's where Congress may really muck up the housing recovery, especially in light of this report:

• Lowering the conforming loan limits, which is scheduled to happen on October 1, 2011.  In the Seattle area, the current conforming loan limit is $567,500.  Effective October 1, 2011, it's set to roll back to $506,000 meaning that loan amounts of $506,001 or higher will be "jumbo" non-conforming.  Jumbo loans have much tougher guidelines and higher rates which does mean that fewer people will qualify for higher priced homes.  Loan limits are also set to be reduced for FHA and VA loans after September 30, 2011.  By the way, 2012 loan limits may be even lower!
• Increasing the minimum down payment for FHA loans from 3.5% to 5%. Congress is working on this right now and it's been tossed around by our government for quite a while.  Does having 1.5% more "skin" in the game really make a more responsible borrower?  I don't think so.  I would rather see that a borrower have that 1.5% in their savings than invested as down payment (where they do not have access to it should they have an emergency) in a home.

People can still get a mortgage today.  It bothers me that NAR and others are painting that mortgages are too tough to obtain...painting an inaccurate picture does not help the housing market either.  Today's buyer needs to be prepared to provide plenty of paperwork to support they actually qualify for the mortgage by showing they earn what they say, have the funds for closing and are employed.  What's wrong with that?

If you are considering buying a home, I do recommend meeting with a local licensed mortgage professional as early as possible to start on the prequalification process.  If your next home is located anywhere in Washington State, I'm happy to help you!  

PS: I still believe that it would tremendously help the housing markets recover IF home owners who want to refinance and who qualify based on credit, income and employment are allowed to without an appraisal...very similar to an FHA streamline refi. This would allow people who want to stay in their homes and who qualify, to be able to take advantage of today's lower rates and not cause them to be punished due to lower appraised values.

"Going Above and Beyond" is Doing Our Jobs

I received a really nice thank you card from Shannon Ressler at Findwell Realty last week that I want to share with you. We recently helped Shannon's clients buy a vintage bungalow that was a short sell in the Magnolia neighborhood of Seattle using an FHA insured mortgage. Being a short sell and an FHA insured loan, there was no shortage of paper work and the transaction was coming "down to the wire".  

Closing was set to take place on Friday...and early Thursday morning, I received a message from one of our buyers saying he was flying out at noon for a family event...he'd be back on Monday. Luckily Mike was able to reschedule his flight until four, however, we were still in a crunch to get docs out.  NOTE:  I normally like to have loan docs out several days before signing...but sometimes transactions (especially short sales) don't happen that way.

Extentending contracts with short sales can be a chore since in addition to dealing with a buyer and a seller, you also have the seller's lender.  Adding to this, I had renegotiated our clients interest rate lock lower and the lender I had the rate locked with charges a higher extension fee once a rate lock has been renegotiated.  We really needed to close on time.

We were able to rush loan docs out to the escrow company.  As a correspondent lender, we prepare our loan docs at our main office in Kent and we make our own underwriting decisions (following guidelines, of course)...escrow was gracious receiving loan docs last minute AND THEN, their system crashes.  I have to say, I've never had this happen!  Mike's flight out was rapidly approaching.  We were running out of time and escrow's computers were not cooperating.

Marilyn Porter, President of Mortgage Master Service Corporation (and my sister-in-law) had an additional set of their loan docs printed and we arranged to meet our buyers at Sharps Roasters by SeaTac Airport.  While we were heading to Sharps, Mike and Mary obtained their cashiers checks for the estimated amount due for closing. Marilyn even had a couple orders of sliders and fries waiting for everyone...figuring with all the rushing around, they'd probably be hungry.

By the time we were done with the signing, escrow's system was back up and they emailed their docs (escrow instructions, estimated HUD-1 Settlement Statement) to our clients to sign and return. I created a video review of their estimated HUD since escrow was not able to review it with them.  

Our job wasn't over. Escrow needed the buyer's cashiers checks before 4:00 that day in order to have them in time for funding tomorrow. We wound up having the wire instructions emailed to our phones and we deposited the buyers checks directly into escrow's accounts.  

And, I'm happy to say that we DID fund and close on time. 

I am so proud of the crew I work with at Mortgage Master Service Corporation. 

Thank YOU Shannon, for your recommendation and thoughtful card!  Shannon was an asset throughout this transaction, it was a great team effort from all.

How to Select Your Mortgage Originator

I'm working with a West Seattle couple who are getting ready to buy their first home.  This is something that is not unusual for me to hear:

"Our real estate agent was wanting us to contact a few lenders and have them all pull GFEs on the same day with the same perameters so we can choose who to go with. Then whoever has the best rates/lowest fees we were planning to have pull our credit..."

The real estate agent has good intentions, however this may not be the best advice for how to select a mortgage originator.   First of all, this couple may find it difficult to estract a good faith estimate from a mortgage originator without being in contract.  This is due to HUD's [flawed] regulation that if a LO issues a GFE without a property address, once the buyers actually have a contract, the bona fide address of their new home will not constitute a "changed circumstance".

It is solid advice that if you're going to shop lenders, do so at the same time with the same perameters--just don't expect a good faith estimate.  DO get something in writing from the lender (it may go by many different names, including "rate quote" or "worksheet", etc).

In addition to rates and fees, here are some other suggestions I think one should consider when selecting the professional who will be helping them obtain the financing of their home:

How long have you been a mortgage originator?  I began originating mortgages on April 1, 2000.  Prior to that, I was in the title and escrow business for 14 years.

What type of mortgage company/institution do you work for?  Most will say bank, correspondent lender (some LO's will call themselves "mortgage bankers"), mortgage broker or credit union.  Each type of company offers unique advantages or disadvantages.  Mortgage Master Service Corporation is a correspondent lender.

What type of programs does your company offer?  We offer FHA, VA, USDA, Conventional, Jumbo (non-confoming mortgages).   If you're considering a certain program, such as FHA, ask the LO how long they've been originating that specific type of program.

Where are your loans physically underwritten?  I've worked with our same underwriters for over 10 years at our main office in Kent.  I also work with my Processor (not a random "pool").

Are you NMLS Licensed or Registered?  There are differences between what each type of LO is required per the SAFE Act between Licensed and Registered LOs.  LO's who work for a bank or credit union will try to tell you that they've been adhering to the SAFE Act...only Washington Licensed LO's are regulated by DFI and have a license to lose.  There is more required of LO's who are licensed per the SAFE Act than those who are registered.  I'm NMLS Licensed and have been licensed since 2007 (when state licensing started).

I also recommend "googling" your mortgage originator.  It's totally my opinion, and perhaps a bit biased, that if your mortgage originator blogs or has a social media profile, their reputation is gold to them.  They tend to be more transparent and current on ever-changing guidelines IF they are writing their own content.   Google me!

How Much Info Can Your Mortgage Originator Share - Part 2

I asked Jillayne Schlicke of CE Forward to chime in on a question (below) that I received from one of my readers.  I'm happy to say, she wrote an entire page and therefore, I'm sharing this post, written by Jillayne with you.  Part 1 of this article, where I address the question, can be read by clicking this link.

As a loan originator, is it ethical to deny someone for a loan and then turn around and share not only that the loan was denied, but the EXACT reason the loan was denied (for example: too many NSFs, large deposit in checking account, hours cut back at work, etc.) with the applicant's Realtor as well as the listing agent who in turn shares it with the sellers?

Jillayne's response:

When trying to figure out an ethical dilemma, many try to oversimplify for purposes of being efficient such as, "do the right thing," or "follow the golden rule," or even "if I won't be able to sleep at night I know it's not ethical." Some people turn to their favorite religious book for the answer. But with the above question, these tactics fall short. Not everybody agrees on the definition of the word "right." Regarding reciprocal treatment, sometimes people want to be treated BETTER than how we treat ourselves and sociopaths sleep just fine at night while committing mortgage fraud during the day. There are thousands of different religions in the world so whose religion would we follow as a group of loan originators? For example, we like it when others treat us with respect but respect in action form can look different from one religion and culture to the next. So what can a loan originator do when facing an ethical dilemma? Here is a methodology loan originators can use to solve ethical dilemmas:

(1) Define the problem and frame the issue.

(2) Collect facts.

(3) Reframe the issue if necessary.

(4) Is there a clear statement of law that directly addresses the issue?

(5) Are you a corporate manager? If yes, apply managerial ethics.

(6) Are you a partner in a partnership? If yes, you have fiduciary duties to your partners.

(7) If you are a member of a professional organization with a written code of ethics, apply those principles.

(8) Identify relevant principles (in and out of the code), look at possible consequences, identify intrinsic values (for example, honesty, responsibility, respect, justice, compassion, etc. and examine the relation between these values and the person you want to become.

(9) Are there any formalized policies and procedures or a code of ethics at your mortgage company? If so, apply.

(10) Consider all alternatives. Make sure all relevant considerations are addressed.

(11) Assess the rightness and wrongness of each alternative. Provide reasons for each justifiable alternative.

(12) Decide justifiable alternatives.

(13) Act.

(14) Reflect. Consider whether anything was lacking in the resolution of the case. Discuss objections to reasons offered. Consider how this problem or situation could be avoided in the future. Could policy changes or better communication prevent cases like this one?

To solve the above ethical dilemma, we pause at step 4 and consider the Graham Leach Bliley Act, also known as The Privacy Act: 

"Except as otherwise provided in this subchapter, a financial institution may not, directly or through any affiliate, disclose to a nonaffiliated third party any nonpublic personal information, unless such financial institution provides or has provided to the consumer a notice"

Going back to step 2, does the loan originator have written permission in the file to share the details of this loan with the seller and Realtor?

Moving back to step 4 we could also check state law. In Washington State, if the loan originator works for a mortgage broker, fiduciary duties are owed to clients.

 

"A mortgage broker must act in the borrower's best interest and in the utmost good faith toward the borrower"

But all loan originators are required to follow the federal SAFE Mortgage Licensing Act  See number 8 under 1502, Purposes:

 

"Establishes a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer."

So this is not an ethical question, it is a legal question. Hopefully the consequences of having private information shared were not too severe for this consumer. Loan originators do make the mistake of believing the Realtor is their primary client. Having a direct, open discussion with Realtors about client boundaries and what a loan originator can and cannot do is important because this sets up a relationship grounded in respect. Licensed real estate brokers should understand this concept anyways because it is a part of their real estate agency relationship.

I am struggling to come up with a good reason when sharing private information regarding adverse action on a file would be in the best interest of a consumer or a client although I'm sure we could stretch and reach some outlier reasons. Since the home seller is in an adversarial position from the homebuyer and the homebuyer may wish to seek financing from another lender, it is best to keep private client information private.

Thanks, Jillayne!

How Much Info Can Your Mortgage Originator Share with the Real Estate Agent - Part 1

I received this question a while ago from one of my subscribers:

As a lender, is it ethical to deny someone for a loan and then turn around and share not only that the loan was denied, but the EXACT reason the loan was denied (for example: too many NSFs, large deposit in checking account, hours cut back at work, etc.) with the applicant's realtor as well as the listing agent who in turn shares it with the sellers?

It's flat out wrong for a mortgage originator to share someones personal and private information.  Sometimes mortgage originators may feel pressured to provide extra details by a real estate agent wanting the nitty gritty and the mortgage originator must decline, or perhaps they're trying to score some brownie points.  Even with "perfect" clients, agents may want to know details that a mortgage originator cannot and should not provide due to strict laws protecting the borrowers privacy.  This is a perfect example of why I have an issue with mortgage originators also acting as a home buyers real estate agent.

I encourage borrowers I'm working with to discuss their situation with their agent and vice versa.  There is nothing preventing a home buyer and real estate agent from having a conversation and it's up to the borrower/home buyer to decide how much information they want to share.  However, Dear Agents, please keep in mind that the home buyer may be embarrassed about their situation or may not want you to know their privates.

A mortgage originator can share with an agent that the borrower does have verified funds to close and is approved for the mortgage based on their credit, income and employment.  These items may be addressed in a preapproval letter. 

Real estate gents will often call me to ask about a potential home buyer who has an offer pending.  A majority of the time, it's really a "sniff test" to make sure that I answer my phone, return calls quickly and to verify that the borrower is actually preapproved.  They may try to find out if the buyer can qualify for more and I have to decline answering.  Many times the buyer may qualify for more BUT the buyer wants to offer or buy less.  Without instruction and permission from the borrower/buyer to reveal any of their personal information - mum is the word.

Stay tuned for Part 2; I have asked Jillayne Schlike of CE Forward to chime in on this subject.

My Thoughts on the Future of Home Mortgages and Home Ownership

Yesterday, I had the Future of Housing Finance playing in the background as I was working away on rate quotes and lock commitment confirmations for a few of my clients in the Seattle area.  Oh how I wish that I, or a fellow mortgage origintor who has been originating mortgages since pre-subprime days could be on the panel.  Since I'm not, I'm going to share a few of my thoughts on this post.

People who currently have a mortgage and who are credit and income qualified (have made their payments on time) should be allowed to refinance without an appraisal.  This would not only help home owners save hundreds of dollars each month with their mortgage payment, the end benefit would be real stimulus for the economy.

I believe all mortgage originators, regardless of the type of institution they work for, should be held to the highest standards of the SAFE Act.  (Currently mortgage originators who work for banks or credit unions are not licensed).  

I also feel strongly that those who present themselves to be residential mortgage originators (licensed or registered) should not be allowed to also sell real estate.  I'm concerned this has huge potential for fraud and the home buyer is not best served when a real estate agent knows the fine details of the buyers finances.  I view this as a huge conflict of interest.   HUD all ready has this standard: real estate agents cannot originate an FHA insured loan.  I'd like to see this implemented with conventional financing.

Last but not least, not everyone in American needs to or should own a home.   Owning a home is not a right, it's a privelidge that's one's personal financial choice.  And there's nothing wrong with renting a home.  Renting a home, like obtaining a mortgage, is a personal financial choice.  

What are your thoughts? 

Who Does Your Loan Originator Really Work For?

I often wonder how a consumer can truly trust a mortgage originator who sits in a housing development or a real estate office.  Yes, it's convenient when you're checking out that new home and the loan originator that works with the builder or real estate company just happens to be sitting there waiting for you or the next person who'll walk through their door.  Is that the best option for you?

HUD is questioning this with regards to builders with in-house lenders and if this arrangement is a RESPA violation.  It is harmful to consumers if the closing costs or rates are increased to compensate for what the lender may have to shell out to be that builder's preferred lender. Often times, you may find that the builder has built any cost to bribe you to work with their lender by increasing the sales price of the home.  RESPA violations aside, I've always felt that if you work with the builder's lender, you're providing your personal information to the "seller" or the more specifically, the employee of the seller.   The loan originator may be employed by a bank, but when they're constantly fed by the builder...where do their loyalties rest?

I feel the same way about loan originators who work as "joint ventures" with real estate companies.  They may be paying rent inside your real estate agent's office or just be on their preferred providers list with some sort of business arrangement.  I believe most of the big real estate brokerages in the Seattle area have an arrangement made to steer you to their lender, title or escrow company.   When a loan originator, title rep or escrow officer are constantly fed or partially owned by a real estate company--where are their loyalties?  If you only want to get approved for a $400,000 sales price, and can afford to much higher--do you think the LO who's shacked up with the real estate agent will let that agent know when they press the LO for more info on you?

Yes, you pay for their origination, title or escrow fees, but who are these people really work for.  Shouldn't you have more of a choice?   Some real estate agents will tell you that there isn't much difference in rate or fees--which they may truly believe; however, it may not be accurate. 

I "work for" Mortgage Master Service Corporation.  I'm paid by the consumer when we close a mortgage transaction together.  My business is dependent on my clients referring me to people they know who need a mortgage in the greater Seattle area.  I also have clients who find me from reading my blogs.   I am not part of any joint venture or arranged business agreements.  I'm not paid based on volume, quotas or selling a certain type of program.

Bottom line as a borrower in one of the largest transactions you may ever make in your lifetime, it is your responsibility to make sure you have the right team working for you.  Do as much research as possible before you've entered into a real estate contract.

Photo credit:  Sarah G... via Flickr

FHA Financing Not Available on a Listing? BIG MISTAKE

Someone recently landed on my blog by entering the phrase:

Why are so many homes not FHA approved?

It's an interesting question.  I'm assuming the person doing the research on the internet is a home buyer and that they're looking at a stand-free home and not a condo...pure assumption on my point.  (If it is a condo, that's another story).

I'm wondering if the person is finding that sellers are not promoting that they will accept FHA financing on their listed homes...which is a huge mistake.

FHA loan amounts in the Seattle and Bellevue area goes up to $567,500 for a single family dwelling and currently allows a down payment as low as 3.5%.   FHA is also more flexible with credit and some underwriting guidelines.

FHA loans are more popular than ever with the ever tightening guidelines and risk based pricing that conventional loans have.  Many of my FHA home buyers are putting down more than the minimum required investment of 3.5%. 

Some might be selecting FHA for their purchase because they're converting their existing home to a rental property and FHA does not have the same reserves conventional guideline requiring 6 months of mortgage payments (PITI) for EACH property owned (or buying) if the converted home has less than 30% equity (which is often the motivation for turning the home into a rental).

Some select FHA financing because they plan on selling their home in the future and are hedging that mortgage interest rates will be higher in the future.  They know that their current low rate FHA mortgage may be assumable to a future buyer in a higher rate environment.

I've had well established clients opt for an FHA mortgage because FHA treats alimony payments different than conventional financing.

FHA is not the same mortgage that it was a few years ago.  At the end of 2005, appraisals became more "common sense" allowing minor conditions to exist, focusing  more on the safety and soundness of the property.  FHA appraisals are very similar to conventional these days.

FHA transactions do not take longer to close nor are their higher closing cost for the seller than a conforming loan

My point is, there are many reasons sellers should accept FHA financing.  If a seller or real estate agent is steering away from an FHA approved buyer, they're really reducing the potential of excellent buyers for their home.

What Should a Preapproval Letter Contain?

This isn't the first time I've written about preapproval letters at The Mortgage Porter...however it has been a while and I would say that with all the changes in the mortgage industry, your preapproval letter is more important than ever.  Most Seattle area real estate agents will not accept an offer on a home that's listed for sale without a bona fide preapproval letter.

Preapproval letters may vary in appearance and content from lender to lender.   Some mortgage companies may have different protocal for when a preapproval letter may be issued.   When I provide a preapproval letter, it means that I have a complete loan application, most likely with exception to the property address since the home buyer has not yet identified a home.   It also means that the home buyer (i.e. borrower) has provided me all the necessary documenation that supports or backs up the information that has been provided on the loan application, such as

• income documenation (to make sure they qualify for the proposed montly mortgage payment)
• assets (at minimum, enough to cover the down payment and closing costs)
• credit report...everything seems to be based on your credit score from potential interest rates to what you qualify for.   This is something that we need to pull if you are interested in obtaining an actual preapproval.

A good preapproval letter should address all of these items so that the seller and the real estate agents know how qualified the home buyer is.  This is done in a manner in which not to violate the buyers privacy.  For example, a seller or real estate agents should not see the buyers income, assets and credit scores.  If a buyer wants to share that information with someone other than their mortgage professional, it is up to them!   Instead, the preapproval letter will address that these items have been reviewed and are acceptable. 

For example, I might include something like this in a preapproval letter:

This preapproval is due to your job stability and excellent credit.  Funds to close this transaction are from your personal savings and a seller contribution in the amount of $5,000.

You can see that I have addressed income, assets and credit in this paragraph. 

My preapproval letter also includes the sales price and loan amount.  Every so often I'll have a real estate agent want me to leave the sales price blank.  This is something that we can do IF the borrower has substantial cash reserves.  I've found that some home buyers would rather not have their preapproval letters written this way...and I'm happy to provide several preapproval letters with staggered sales prices (as long as the borrower has documented the funds for down payment and closing costs).

You may find a total mortgage payment on a preapproval letter.  This is because borrowers are qualified by their mortgage payment since loans have a certain allowed debt to income ratio.  If a borrower is a little pushed with their ratios and they find a home within the sales price and loan amount they are preapproved for, but the property taxes or home owners insurance are higher than estimated or mortgage rates climb higher than what they were approved at, you no longer have a preapproved buyer.   Whether or not your mortgage originator includes what payment you're preapproved for, it's important to ask.

Any conditions to the loan approval should be included on the preapproval letter.  Standard conditions on our preapproval letter may include:

• satisfactory purchase and sales agreement
• satisfactory title commitment 
• subject to appraisal 
• subject to changes to financial situation as disclosed on the loan application (i.e. changes in your employment, debts or assets may jeopardize your preapproval status).

Preapproval letters may also have an expiration date.  Before our current lending environment, preapproval letters would be valid for a longer period of time.  Now credit reports and other supporting documentation "expire" earlier.  Should your preapproval letter expire, they're typically easy to update by just supplying your latest supporting documentation (paystub, bank statement, etc). 

The letter should have a date and be signed by whomever prepared the letter with their contact information. 

When I prepare a preapproval letter for someone who's buying a home located in Washington, at the very least, they have gone through preliminary underwriting.  If a mortgage originator has not obtained your documentation or if you have not completed a loan application, you are probably just prequalified and not preapproved.

With HUD's new Good Faith Estimate, unless you have a property address, you may not receive a good faith estimate with your preapproval letter.  This is a glitch with RESPA that I hope HUD finds a way to correct.  Even HUD admits that if a mortgage professional provides a good faith estimate without a property address, they're doing so at great risk (due to the financial liabilities packed in the new Good Faith Estimate).   Your mortgage professional can provide you with a "work sheet" until you have a transaction (property address).

If you are shopping for a home anywhere in Washington state, I'm happy to help you become preapproved. 

 

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