Pre-Qualification vs Pre-Approval

When you are selling your home For Sale by Owner or even with an agent, you need to understand what kind of approval or well, not approval is provided with the offer. Many people get pre-qualified and pre-approval mixed up and they are entirely different as to how secure they are with their financing. The mortgage industry continues to provide relaxed letters of qualification or approval for clients who may or may not be able to close on the house they choose.

We will look at qualifications and approvals a bit deeper.

Pre-Qualified

Getting pre-qualified involves supplying a bank or lender with their overall financial picture, including debt, income, and assets. The lender reviews everything and gives an estimate of how much the borrower can expect to receive. Pre-qualification can be done over the phone or online, and there is usually no cost involved.

Pre-qualification is quick, usually taking just one to three days to get a pre-qualification letter. Keep in mind that loan pre-qualification does not include an analysis of credit reports or an in-depth look at the borrower’s ability to purchase a home.

The pre-qualification has NOTHING reviewed in terms of documents – bank statements, W-2, 1099, tax returns, investment accounts or the credit. The potential borrower is verbally providing an idea of who they are credit wise and financially.

A pre-qualified buyer does not carry the same weight as a pre-approved buyer, who has been more thoroughly investigated. As a Realtor, I tend to stay away from pre-qualified letters for offers and request that the borrower go back and get pre-approved.

Pre-Approved

Getting pre-approved may take a few extra steps, but it is a better way to go to ensure a borrower can close a deal (or at least fairly good chance to close).

The borrower must complete an official mortgage application to get pre-approved, as well as supply the lender with all the necessary documentation to perform an extensive credit and financial background check. The lender will then offer pre-approval up to a specified amount.

Lenders will provide a conditional commitment in writing for an exact loan amount, allowing borrowers to look for homes at or below that price level.

This puts borrowers at an advantage when dealing with a seller because they are one step closer to getting an actual mortgage.

 

When a borrower provides the PRE-APPROVED letter from the lender, it gives the seller a warmer feeling that the deal will happen. As a Realtor I prefer a pre-approval with an offer over the pre-qualified letter.

 

Remember there are still conditions to be met on the mortgage side, even with a pre-approved letter. You should always call the lender and have a brief and to the point discussion about the pre-approval letter. Find out if there is anything major lacking from the file that could cause the loan to pause or be denied at later date – make sure they have reviewed credit, all documents and ask if they owe the lender anything.

 

DO NOT BE AFRAID TO ASK QUESTIONS TO THE LENDER OR BUYERS AGENT. IT IS YOUR HOUSE THAT IS BEING SOLD.

 

This information comes from a Realtor and not a lender. This is just for informational purposes giving you a better understanding. We are not lenders or a mortgage company.

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan (Ohio and Florida by 2021), please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

 

 

 

Real Estate Calculations for Investors

There is more to understanding investment real estate than the home itself. There are decisions that will need to be made before you purchase the property. You will need to know certain calculations so that you can make the right decision. One decision you will need to make is, are you holding the property to be rented out or are you going to rehab it and flip the property.

Remember, your profit is usually determined when you buy the home, not when it sells. This means if you buy the property for the right price, you will have the profit margins you are wanting.

Using a Realtor, you can get help with some of the information you will need to complete the formulas or double check the numbers. Websites like Zillow and other public sites that offer FREE VALUATION can provide inaccurate information.

Gross Scheduled Income

This real estate formula lets you know how much income your property will generate if all units within it are rented and if there are no defaults in rent payments. This can be a useful measure to compare with your actual income.

Talk with your Realtor and get some rent comps for the area. Many investors guess the rents or place what they think they will be asking. Rental comps are as important as sales comps. You want to be realistic in your calculations. If you get more than what you expected…GREAT!

Gross Scheduled Income = Rental Income + Lost Rental Income from Vacant Units

Gross Operating Income

This figure reflects the gross operating income in addition to all other sources of income from your rental property. This can include revenue from parking spaces, laundry, public vending machines, or others.

Gross Operating Income = (GSI – Lost Rental Income from Vacant Units) + Other Income

Net Operating Income

To use the net operating income formula, you first need to figure out your gross operating income. Once you have that figure, you subtract your operating expenses- things like insurance and maintenance costs. You should note, however, that things like investment property depreciation and interest payments do not factor into operating costs. 

Net Operating Income = Gross Operating Income – Total Operating Expenses

Capitalization Rate

The cap rate is one of the most important real estate formulas. The cap rate formula compares an investment property’s net operating income with its market value, allowing investors to quickly compare properties to see which one is most worth it.

Cap Rate = Net Operating Income / Market Value of Property

Cash on Cash Return

Figuring out your cash on cash return is crucial in real estate investing. It is a widely popular real estate formula since it allows investors to compare investments and evaluate the most profitable one based on the terms of financing. A spreadsheet is a good way to see the side by side comparison between properties that are similar. By setting up the spreadsheet with formulas, you can quick input the basic numbers and see which one is the best property for your investment.

To use the cash on cash return formula, you simply divide your net operating income by your total cash investment. Typically, your total cash investment will include the down payment, closing costs, renovation costs, and any other upfront fees you paid to acquire the investment property.

Cash on Cash Return = Net Operating Income / Total Cash Investment

Equity Build-Up Rate

Smart real estate investments do not always come in the form of immediate income. Some properties are great investments due to their potential to build equity, therefore becoming more valuable assets in the future. This simple real estate formula can help in measuring these gains.

Consulting with your Realtor is also a good way to see how quickly an area is growing in value.

Equity Build-Up Rate = Mortgage Principal Paid (Year 1) / Initial Cash Invested (Year 1)

Price to Rent Ratio 

This figure shows you how much rent you will be receiving, versus the price at which your property was purchased. This can be useful when comparing residential real estate investments. Like other calculations, a spreadsheet with formulas can help make quicker decisions.

Price to Rent Ratio = Purchase Price of Property / Annual Rental Revenue

Price Per Square Foot

Along the same lines, the price per square foot real estate formula can be useful when comparing investments. Savvy investors can use this calculation to evaluate if a rental property is overpriced before it is purchased. Your Realtor can help you evaluate this more in depth by pulling both rental and sales comps, which list out the price per square foot (as-is, not post-rehab).

Price Per Square Foot = Market Value of Property / Property Square Footage

Return on Investment

The return on investment formula allows you to see how much of your initial investment you can recoup annually.

Return on Investment = Annual Returns / Cost of Investment

Cash Flow From Operations

Successful real estate investments will involve more money coming in than going out. You need to subtract your capital expenditures (roughly defined as large expenses that do not reoccur) from your net operating income to figure out your cash flow from operations.

Cash Flow From Operations = Net Operating Income – Capital Expenditures

Cash Flow After Financing

Considering that most real estate investors have borrowed money in order to make their investment, this cash flow formula can provide a better idea of what your cash flow is like.

Cash Flow After Financing = Cash Flow From Operations – Financing Costs

Occupancy Rate

This figure reflects the time that an investment property is rented out over a period. Your occupancy rate is one of the most important indicators of your success, and a low occupancy rate can let you know that action is needed from your end.

Low occupancy can occur when properties are in need of repair. People tend to look for a replacement place to live if a landlord is not keeping the place livable or did not complete some repairs required previously. Landlords can “promise” to fix things to get people to move it, in turn causing them to move out as fast.

Occupancy Rate = Number of Days Occupied / Total Number of Days in One Year

Break Even Ratio

This figure is often used to evaluate risk when making a real estate investment. Too high of a figure when using this real estate formula can indicate that it will be an uphill battle to break even with an investment property and recoup debts.

Break Even Ratio = (Debt Servicing Costs + Operating Expenses) / Gross Operating Income

Gross Rent Multiplier

The gross rent multiplier real estate formula allows investors to figure out the market value of a rental property. This is especially useful when selling a rental property, as it allows you to set the right price the first time.

You will want to compare notes with a Realtor. This calculation can help set the value based on the numbers, but it is always good to have a second pair of eyes.

Gross Rent Multiplier = Market Value / Gross Scheduled Income

Debt Service Coverage Ratio

This real estate formula can be used to figure out the current cash flow you have available to recoup the debt which financed your investment.

Debt Service Coverage Ratio = Net Operating Income – Annual Debt Service

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan (Ohio and Florida in 2021), please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

What is a Real Estate Appraisal? And more….

 

Real estate appraisal, property valuation or land valuation is the process of developing an opinion of value, for real property (usually market value). Real estate transactions often require appraisals because they occur infrequently and every property is unique (especially their condition, a key factor in valuation), unlike corporate stocks, which are traded daily and are identical. The location also plays a key role in valuation. However, since property cannot change location, it is often the upgrades or improvements to the home that can change its value. Appraisal reports form the basis for mortgage loans, settling estates and divorces, taxation, and so on. Sometimes an appraisal report is used to establish a sale price for a property.

If you have bought or sold real estate – your own personal residence, investment, or commercial property, you have probably dealt with the appraisal process. Besides the inspection, it is the part of the transaction that keeps you biting your nails. As the seller or selling agent, even with the most up to date information, appraisals can come in with unexpected values.

Sellers and listing agents should do their homework and have comps ready in case the appraisal comes back with a number that is lower than the list or sales price. You can submit these comps to the appraisal company to fight the appraisal. The more homework you must share, the better the chances you have to get them to adjust price. Although in the years I have been doing real estate, I have a better chance at winning the lottery, than getting them to adjust their report.

Buyers cannot chose the appraisal company or the appraiser they use (I will not say that this is 100% of the time, but in most cases where a loan is involved, the buyer will be hands off and should remain hands off). Buyers and their agents should also do their homework to make sure the offer they are submitting matches the value of homes in the area. Renegotiating the deal after the appraisal can be a struggle once the seller has a value from the offer in their head. Even through it was offered, the bank will not accept something lower and most of the time the buyer is not willing to come to the table with more money than the home is currently worth.

An appraisal is a safety net for the bank and the buyer. The bank needs to protect its loan with a piece of real estate at a specific loan to value.

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in  Michigan, please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

 

What is a Quitclaim Deed?

A quitclaim deed is a legal instrument that is used to transfer interest in real property. The entity transferring its interest is called the grantor, and when the quitclaim deed is properly completed and executed, it transfers any interest the grantor has in the property to a recipient, called the grantee.

  • Typically used in a NON-traditional sale
    • Between family
    • Divorce
    • Into a trust

Simple way to transfer deed – no title search is done. Since there is no title search done, liens, taxes, open mortgages, and loans are not checked for. The verification of the grantor also is not checked to make sure they can convey the property.

Quitclaim deeds are also used to clear up matters when there may be an ownership issue or claim. The person with claim can sign a quitclaim deed over removing themselves.

Quitclaim deeds are not used for traditional real estate sales (especially with a lender involved), because the new owner receives no guarantees about the title and how valid it is.

Although we are not lawyers and would advise anyone using a quitclaim to seek advice, we do want to put a word of warning out there. Quitclaim deeds are used often in investment property sales and scams both. People use them to transfer property they do not own, or they know has other encumbrances. Therefore, working with a proper title company or lawyer when involving real estate is a good idea. Not transferring property correctly or verifying ownership and other information can be a costly mistake. More than what it would have costed to have a title search done and having insurance you are getting a solid transfer.

To transfer title by quitclaim, a quitclaim deed form must be in writing to be valid. This legal document includes a legal description of the property that is being deeded, the county it is located in, date of transfer, and the names of the grantor (person transferring the property) and grantee (person receiving the property). If a price has been paid for the transfer, that amount is included.

The grantor signs the document, and this signature is generally notarized. Witnesses may be required depending on the state. In some states the grantee also signs the deed. It is common to file the deed with the county clerk in the county where the property is located, but in some states, this is not required.

Quitclaim deeds are a part of the real estate world. Although they are not as secure as Warranty Deeds, they are used. If you need help preparing a Quitclaim deed or have questions about them, you can contact your local title company or real estate lawyer.

If you are thinking of buying or selling real estate and would like to talk further about title company needs (Nationwide), please call Gary Brincat or Scott Fader at 248-617-0004 or email them at info@inkedtitle.com

Thank you,

Scott Fader and Gary Brincat
Inked Title, LLC

Inked Title is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers of real estate with Mitten Realty Group (www.MittenRealtyGroup.com or 248-294-7850) and owners of Inked Title. They have been working in real estate as brokers, Realtors, investors, property managers and real estate and title company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

 

Why Do I Need a Title Company?

A title company is more than just a place to close your property. They are the research company for the buyers, sellers or both in a transaction. We will talk about title companies in the general aspect, as each state can be a little different when it comes to how your property is closed and who is part of the process. You will want to call a local title company or real estate lawyer to find out how your state works. You can also call Inked Title, LLC at 248-617-0004 or e-mail them at info@inkedtitle.com and their staff can find out what the process for your state on real estate closings and title.

WHAT IS TITLE?

In property law, a title is a bundle of rights in a piece of property in which a party may own either a legal interest or equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document, such as a deed, that serves as evidence of ownership.

HOW DO YOU KNOW THE OWNER IS THE OWNER?

To find out who owns the bundle of rights and ownership the title company will do a title search. A title search is an examination of public records to determine and confirm a property’s legal ownership and find out what claims or liens are on the property. A clean title is required for any real estate transaction to go through properly.

The way to look at title is like a credit report. The cleaner the better. If the credit report is bad or has bad information it can cause issues, just like clouded title. It is always a good idea to make sure when you sell or when you buy, the title to the property is ready to be conveyed.

As the title company is reviewing who owns the property, they will also be checking on the status of the property taxes, any special assessments attached to the property, any liens someone has placed on the property, outstanding mortgages, HOA liens or if there is an HOA, so that they can get a full idea of what will be required to be paid off in the closing and what information they may need to collect from the parties involved.

When research is complete, the title company provides a report called a “title abstract.” You should get a copy of this before you close on the home to review. This document is not your title insurance policy. That is a separate document you’ll get from your agent.

WHAT IS A TITLE INSURANCE POLICY?

Title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property. The most common type of title insurance is lender’s title insurance, which the borrower purchases to protect the lender. The other type is owner’s title insurance, which is often paid for by the seller to protect the buyer’s equity in the property (Again, this differs state by state).

CLOSING:

Once all the title documents are set and the lender and title company have compared and approved all the numbers, the title company will help in the process of closing the home (once again, who closes and who is involved will vary from state to state). The closing will also vary on if the home is a cash deal or one with a lender involved. The closer will go through all the docs that they have prepared, and the lender has provided to give you a full understanding of what you are signing and why. They will also go back over the numbers within the documents to make sure they are the same as you have reviewed and approved with your lender.

The closing table is fun and stressful. You will want to review as much of the information before closing. Most title companies will provide a digital link to all the documents for review well enough in advance to review. ASK ALL THE QUESTIONS YOU WANT AT THE CLOSING!!!! Many people SIGN SIGN SIGN and then have questions after closing when it is too late. Take your time at the closing, get all your questions answered and leave excited, not worried.

FUNDING:

The title company also assists in the funding of the transaction. Money from the lender and the buyer are provided to the title company who verifies all the money and then disperses to all the parties who are due money – and there are many in a real estate deal.

 

A title company is a valuable resource. They are more than the people who sign documents. They are the companies that ensure your property is free to transfer and both the buyer and seller are secure of any issues with title through the insurance. 

If you are thinking of buying or selling real estate and would like to talk further about title company needs, please call Gary Brincat or Scott Fader at 248-617-0004 or email them at info@inkedtitle.com

Thank you,

Scott Fader and Gary Brincat
Inked Title, LLC

Inked Title is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers of real estate with Mitten Realty Group (www.MittenRealtyGroup.com or 248-294-7850) and owners of Inked Title. They have been working in real estate as brokers, Realtors, investors, property managers and real estate and title company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

 

When you are selling your home, whether it is For Sale by Owner or traditionally with a real estate agent/Realtor, you will have to understand the offers presented to you and the financing they have been approved for. Each type of financing can be different, and each have their pros and cons. Let’s look at an FHA loan.

An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan that is provided by an FHA-approved lender. FHA insured loans are a type of federal assistance. They have historically allowed lower-income Americans to borrow money to purchase a home that they would not otherwise be able to afford. Because this type of loan is more geared towards new house owners than real estate investors, FHA loans are different from conventional loans in the sense that the house must be owner-occupant for at least a year.  Since loans with lower down-payments usually involve more risk to the lender, the homebuyer must pay a two-part mortgage insurance that involves a one-time bulk payment and a monthly payment to compensate for the increased risk.

FHA allows first time homebuyers to put down as little as 3.5% and receive up to 6% towards closing costs. However, some lenders will not allow a seller to contribute more than 3% toward allowable closing costs. If little or no credit exists for the applicants, the FHA will allow a qualified non-occupant co-borrower to co-sign for the loan without requiring that person to reside in the home with the first-time homebuyer. The co-signer does not have to be a blood relative. This is called a Non-Occupying Co-Borrower.

FHA also allows gifts to be used for down payment from the following sources:

  • the borrower’s relative
  • the borrower’s employer or labor union
  • a close friend with a clearly defined and documented interest in the borrower
  • a charitable organization
  • a governmental agency or public entity that has a program providing home ownership assistance.

Now we will look at the pros and cons of the FHA loan so you can further understand the buyer you will be working with. The pros and cons are directly about the loans themselves. By understands the good and the bad of the loan product, you can choose to accept the FHA offer or state in your MLS listing you will accept FHA loans. One thing I would like to point out from a Realtor perspective, is that just because someone cannot afford 20% down, it does not make the offer less desirable. If the client is approved for the offer amount in purchase agreement, the offer has merit to consider.

Pros

  • Low down payment with low credit scores. FHA loans require a 3.5% down payment with a credit score of 580 or more — much lower than the 620-score required by conventional lenders. Employers, close friends, family members or charitable organizations can contribute gift money towards your FHA down payment. In contrast, some conventional loan programs do not allow gifts or restrict who can contribute gift funds for a down payment.
  • Lower credit score with a higher down payment. The lowest credit score for an FHA mortgage is 500 to 579 with a 10% percent down payment. Applicants with credit problems, including bankruptcy or foreclosure in their recent financial history, may still qualify for an FHA loan when they would likely be turned down for a conventional loan.
  • Higher debt-to-income ratio (DTI) is allowed. Your debt-to-income (DTI) ratio is calculated by dividing your total monthly debt payments by your gross monthly income. FHA loans allow for a DTI ratio up to 43%, although some lenders will accept a higher DTI under certain conditions. Meanwhile, a higher DTI may require a 740 score for minimum down payment conventional financing.
  • Housing options. An FHA loan can be applied to several housing types: a single-family home, a multifamily home with up to four units, a condominium, or a manufactured home that’s on a permanent foundation. Another perk: You can use an FHA loan to buy a multifamily (two-to-four unit home) with a 3.5% down payment and qualify with rent on the other units as long as you live in the home for a year.
  • No income limits. Higher-income earners with credit problems can qualify for FHA financing with a minimum down payment. You cannot qualify for 3% down conventional loan programs, such as the Fannie Mae HomeReady® loan, if your household income is more than 80% of your area’s median income.
  • Cheaper monthly mortgage insurance for low credit scores. If you cannot swing a 20% down payment, lenders usually charge mortgage insurance to cover the risk of default if you fail to repay the loan. You’ll pay the same FHA mortgage insurance premium regardless of your credit score. On the other hand, conventional private mortgage insurance (PMI) premiums are much higher if you have bad credit.

Cons

  • Higher total mortgage insurance costs. Borrowers pay a monthly FHA mortgage insurance premium (MIP) and upfront mortgage insurance premium (UFMIP) of 1.75% on every FHA loan, regardless of down payment. A 20% down payment eliminates the need for PMI on a conventional purchase loan. You can also cancel PMI once you build 20% equity in your home.
  • Restrictive housing standards. The government requires that all homes bought with FHA-backed loans are structurally sound and secure, and meet minimum health and safety standards. A particularly picky appraiser could make it difficult for a fixer-upper house to be approved for an FHA loan.
  • Lower loan limits. Each year, the FHA sets FHA loan limits by county. This may impact how much home you can buy with an FHA loan, especially in high-cost areas. In general, FHA limits are 65% of an area’s conforming loan limits. For example, conforming loan limits in most parts of the country are $510,400, compared to $331,760 for FHA loan limits for 2020.
  • Limited to a primary residence only. You can only use an FHA loan to buy a home you plan to live in as a primary residence. To finance a vacation or investment property, you will need a conventional loan.
  • Lifetime mortgage insurance expense. If you opt for an FHA loan with a minimum down payment, you are stuck with the MIP for the life of the loan. The only way to get rid of it is to refinance into a different loan type, such as a conventional mortgage. 

The information here is provided for informational purposes. The writer is not a mortgage or financing professional. It is always best to discuss financing matters with a mortgage or financing professional.

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan (Ohio and Florida by 2021), please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

When you are selling your home, whether it is For Sale by Owner or traditionally with a real estate agent/Realtor, you will have to understand the offers presented to you and the financing they have been approved for. Each type of financing can be different, and each have their pros and cons. Let’s look at the conventional loan.

A conventional mortgage or conventional loan is any type of home buyer’s loan that is not offered or secured by a government entity. Instead, conventional mortgages are available through private lenders, such as banks, credit unions, and mortgage companies. However, some conventional mortgages can be guaranteed by two government-sponsored enterprises: The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

Conventional mortgages typically have a fixed rate of interest, which means that the interest rate does not change throughout the life of the loan. Conventional mortgages or loans or not guaranteed by the federal government and as a result, typically have stricter lending requirements by banks and creditors.

In the years since the subprime mortgage meltdown in 2007, lenders have tightened the qualifications for loans—“no verification” and “no down payment” mortgages have gone with the wind, for example—but overall most of the basic requirements haven’t changed. Potential borrowers need to complete an official mortgage application (and usually pay an application fee), then supply the lender with the necessary documents to perform an extensive check on their background, credit history, and current credit score.

Required Documentation

No property is ever 100% financed. In checking your assets and liabilities, a lender is looking to see not only if you can afford your monthly mortgage payments, which usually shouldn’t exceed 28% of your gross income.6 The lender is also looking to see if you can handle a down payment on the property (and if so, how much), along with other up-front costs, such as loan origination or underwriting fees, broker fees, and settlement or closing costs, all of which can significantly drive up the cost of a mortgage. Among the items required are:

  1. Proof of Income

These documents will include but may not be limited to:

  • Thirty days of pay stubs that show income as well as year-to-date income
  • Two years of federal tax returns
  • Sixty days or a quarterly statement of all asset accounts, including your checking, savings, and any investment accounts
  • Two years of W-2 statements

Borrowers also need to be prepared with proof of any additional income, such as alimony or bonuses.

  1. Assets

You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs on the residence, as well as cash reserves. If you receive money from a friend or relative to assist with the down payment, you will need gift letters, which certify that these are not loans and have no required or obligatory repayment. These letters will often need to be notarized.

  1. Employment Verification

Lenders today want to make sure they are loaning only to borrowers with a stable work history. Your lender will not only want to see your pay stubs but may also call your employer to verify that you are still employed and to check your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income.

  1. Other Documentation

Your lender will need to copy your driver’s license or state ID card and will need your Social Security number and your signature, allowing the lender to pull your credit report.

Most sellers tend to favor the conventional loan. These borrowers tend to be putting more down, they tend to have better credit, and they meet tighter requirements that lead to their approval. This does not mean, FHA or VA offers will not close or are inferior, it is just another or different type of financing.

As a Realtor, I do prefer conventional, but look at all offers to decide which one will benefit the client. All offers are different when they come in, just like the financing. It is sifting through all the information to decide which offer and financing meets the needs of the situation.

The information here is provided for informational purposes. The writer is not a mortgage or financing professional. It is always best to discuss financing matters with a mortgage or financing professional.

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan (Ohio and Florida by 2021), please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.