Get Pre-Approved for a Mortgage
Once you’ve found a Colorado 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 pre approved by a mortgage lender. As Realtors here in Colorado, we won’t put an offer in on a home for a client unless he or she has been preapproved. 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.
Working with a reliable and trustworthy mortgage lender is a crucial part of ensuring a smooth real estate transaction. On the other hand, choosing a bad mortgage lender can turn the process into a nightmare and put your purchase at risk of not closing on time, or worse, not closing at all. Additionally, you might end up regretting your decision for years to come if you end up with a higher interest rate than necessary due to not shopping your loan through various lenders. Don't risk losing your dream property because of a disorganized lender who cannot get you fully approved during underwriting. That's why it's essential to work with the top realtors and the best real estate agents in Denver and Boulder, who can guide you in finding the right homes for sale and recommend reputable mortgage lenders to work with. Here are some Questions to ask lenders
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 year’s worth of W2s (ie. 2021 and 2022 W2)
Past two year’s worth of US Tax Returns (ie. 2021 and 2022 Federal Tax Returns)
Past two year's 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. 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 Down Payment Assistance
Colorado offers several Down Payment Assistance Programs for homebuyers where the state of Colorado will provide money towards your down payment or closing costs. Click here to read about these free programs. If any of the programs interest you, talk to your mortgage lender to see if you qualify.
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 closing costs to be approximately 2.5% of the purchase price of the property. Here is a chart showing approximate closing costs in Colorado. 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).
Should You Shop Your Loan Around?
Working with the right lender can save you thousands of dollars in fees and interest rates. That's why we always recommend shopping around and comparing at least two-three local Colorado lenders when applying for a home loan. But it's important to do it right. To avoid damaging your credit, have lenders pull your credit report on the same day. And when comparing interest rates, make sure you're comparing rates on the same day, as they can vary even over the course of a day. For more expert advice on the home buying process, Appreciate Realty CO offers the best real estate agents in Colorado. Whether you're buying in Boulder, Denver or anywhere on the front range, Appreciate Realty CO’s top realtors can help you find the perfect home for your needs and budget.
Questions about the preapproval process? Just call us at (303)956-4948 or email us at hello@appreciaterealtyco.com