The mortgage pre-approval process 

If you want to buy a Metro Detroit home and have to get a mortgage the seller's agent will require you to have a pre-approval letter.  Just what is a pre-approval letter and why do you need one?

The seller and the seller's real estate agent want to make sure their home sells.   They don't know you or anything about your credit or income history.   They want to make sure your offer is good.  So how do they know that you have good credit, a good job, that you can afford the house, that you can even get a mortgage?  That is what a pre-approval letter does.  It is a letter from a bank or mortgage lender stating the amount of mortgage and home price that you are approved for.  The seller wants to know the deal will close.

In order to get a mortgage pre-approval letter a bank or mortgage lender should:

•  pull your credit
• examine your credit scores, and credit history
• talk to you to determine if there are any issues that might pop up
• review your paystubs, w-2, and tax returns to determine your income
• look at your asset statements such as 401Ks, bank accounts, mutual funds
• run the figures to determine your debt to income ratios
• find out where the down payment is coming from and how much
• figure out what loan program you are eligible for and what loan program fits you the best
• determine that you will qualify for a loan
• take nothing that you say without looking at documentation that backs up what you say ie. paystubs, W-2's etc...

One the bank or lender decides that you qualify for a loan the loan officer will type up a letter stating that you are pre-approved for a loan for a certain purchase price or loan amount.    

A Mortgage pre-approval letterdoesn't guarantee that the loan will close.  But a good loan officer that really reviews the income and asset documents, knows the loan programs, and qualifies the loan applicant will have a good pre-approval letter.   A good closing ratio .  That loan officer's loans will close the majority of the time.   Some loan officers don't do their job and the pre-approval letter isn't worth the paper it is printed one.

But when a seller's agent gets one many times they will call the loan officer and ask them questions like:

• have you sat down with the buyer?
• have you seen the buyers w-2's, pay stubs, assets?
• where is the down payment coming from?
• what is the credit like?
• How much is the down payment?

The seller's agent is just double checking the mortgage pre-approval letter to see how solid it is.  The seller and the sellers agent just want to make sure when they accept your offer that the loan has a good chance of closing.  That's what a mortgage pre-approval letter does for you the Metro Detroit home buyer.

I hope this explains the process a little better.

Russ Ravary your Oakland and Wayne County real estate agent  

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Remove your PMI

With the current Metro Detroit area housing market in disarray many homeowners are going to be forced to stay in their homes.  They can't refinance out of PMI in most cases because home values have fallen.  So homebuyers that have PMI want to know how to get out of it.  PMI is Private Mortgage Insurance which protects the lender if you default on the loan.

1. 78% rule - one you pay down the principal balance down to 78% of the original sales price your primary mortgage insurance (PMI) should automatically be stopped by the lender.  Because of the Homeowners Protection Act of 1998 once you have 22% equity in the home your PMI should be cancelled.  This only applies to mortgages that originated from 1999 and after.  These rules do not apply to FHA or VA mortgages or mortgages with lender paid PMI.
2. 80%  - if you have 20% equity in the house you can ask your lender to remove the PMI.  This is one section people get confused on.  Even I was confused as a mortgage person.  I called up my lender and was very upset that they would not remove it from my mortgage loan.  The lender does not have to cancel your PMI.   Also it does not apply if your house just goes up in value.  The lender does not have to cancel PMI.  there usual guidelines is that there has to be some structural improvement such as an addition to increase the value.  Normal price appreciation through a rising real estate market won't get your PMI cancelled.

If your mortgage started before 1999 the lender does not have to cancel your PMI.  The only way to get out of the PMI is to refinance your home.  But it never hurts to call your lender to find out how or when your primary mortgage insurance (PMI) will be stopped.

Good luck.   I have about a year left on one of my rental properties

Russ Ravary Your Wayne County Realtor

Wayne County real estate blog

As a first time home buyer the whole experience can be overwhelming and scary.  It is the biggest purchase of your life and most first time home buyers know very little about the mortgage process, mortgage paperwork and the real estate buying process.

When seeing the mortgage loan officer whether it is a  bank or a mortgage broker you should ask for these three things to protect yourself.

1. Good Faith Estimate GFE -This is a written estimate of what your closing costs are going to be.
2. Truth - in - Lending - This is a standardized government form for the lending industry to be able to compare the total costs of the loan in terms of interest rate.
3. A written guarantee from the lender or mortgage broker of your total costs

Good Faith estimate (GFE) is what it says it is an estimate.  There is no guarantee that when you go to the closing table that your costs will be even close to what the estimate was.   Some mortgage brokers and lenders have no ethics and raise fees and costs to make more money off of you.  

Truth in Lending is a great document.  It has a number on there call APR.  APR is the annual percentage rate.  This is the true rate you are paying when you figure in the costs of the loan.  You will be paying the interest rate the mortgage loan officer said but in reality you have to figure in what the costs of the loan were too. This document figures that out.  So if you have different Good Faith Estimates GFE from different lenders the Truth in lending document allows you to compare apples to apples APR to APR.

The last document you need is a written guarantee from your mortgage broker, bank, or lender of what you closing costs will be.  Have them put it in writing.  It should read.   Your closing costs for the loan amount of XXXXX will be YYYYY dollars not including pre-paid interest, escrow set up, or tax pro-rations.  By taking those three variables out of the closing costs every lender, bank, and mortgage broker should have an exact number what you are going to be charged.  If they can't give you this document then walk away.  Have them sign it.  Hold their feet to the fire.

By having these three documents you will have some great information you need to make a qualified decision on which lender to use.  

How soon can I buy a home after a Foreclosure or a bankruptcy? 

What is the Whether you are losing your Metro Detroit home in foreclosure or you have a recent bankruptcy now is the time to get your credit back on track.  Years ago you could get a no money down loan one day after foreclosure.  Boy times have changed.  Here are the banks rules that you need to know before you can get a new mortgage in the future.

Now if you have had a foreclosure in your past and you want to get a Michigan mortgage there are time limits.  Time limits on how long you have to be out of the foreclosure.  If you have had a foreclosure the time starts from the day the house is sold or changes to the banks possession.  Not from when your Wayne County or Oakland County home went 90 days late.  It is when the bank or lender finally sells the home or your redemption period is up.  That is when you no longer have any right to the the foreclosed house.

So for a FHA mortgage it is three years and for a conventional mortgage it is five years.  So if your Michigan home's redemption period is up in two months you can't get a FHA mortgage for 3 years from the end of the redemption period.  Or Five years for a conventional mortgage or conforming mortgage.

If you have recently gone through a Chapter 7 or Chapter 11 bankruptcy the time starts from the time the bankruptcy has discharged.  The time the judge has signed the discharge. Not from when you started it..   So if you want to get a FHA mortgage the soonest you can buy metro Detroit real estate is two years from the date of the bankruptcy discharge.  For a conforming loan or conventional mortgage it is five years from the date of the bankruptcy discharge.

So if you losing your Metro Detroit home because of foreclosure don't despair you can start today on the road to home ownership.  Two years and even five years flies buy take it from a 50 year old guy.  I once had bad credit when I was a young man.  If I could get my credit back on track so can you. 

Michigan mortage explanation

The current jumbo loan limit is $417,000.  Jumbo Loans are what they call non-conforming loans.  They do not fit into Fannie Mae or Freddie Mac guidelines because of the loan size.  Many homeowners don't realize that when they borrow over the jumbo loan limit the interest rates jump dramatically.

What you have to realize is that the lender is taking a bigger chance so they want to be compensated for the jumbo loans.  So if you are buying a Metro Detroit home over $535,000 and put the required 20% down be prepared to pay a higher rate.

Russ Ravary

My Quote of the day:

"Holding on to anger is like grasping a hot coal with the intent of throwing it at someone else; you are the one who gets burned." - Buddha