Your Guide to Home Financing That Builds Wealth
Areas of Interest
The Pre-Qualification Vs. The Pre-Approval…
The Pre-Qualification…Your FIRST Step to Financing a Home
Because of the complexities of home financing and the numerous loan programs available to the general public, prequalifying must be done by a qualified loan agent (preferably a mortgage originator) in person, via e-mail or over the phone. The prequalification process is both objective and subjective. Lenders look at much more than just how much cash someone has or have much do they make. They look at the “overall picture”, for what lenders call compensating factors, of the applicant. These compensating factors include income, debt, assets, and credit. Consulting with a qualified loan agent, can help you determine which compensating factors should be emphasized to the lender.
Income Employment and Bonus Income | Debt Credit Card Debt |
Assets Savings and Checking | Credit New Accounts Closed |
The Pre‐Approval…Solidifies Your Home Buying Position
Once an applicant is prequalified, the next step is the preapproval. This involves the lender verifying one’s income, debt, credit, and assets. This is done by sending the lender 30 days of pay-stubs,
- W-2’s and 1040’s for the last two years
- Bank statements on all assets for the last two months
- Verification of credit-by-credit report
- A copy of your driver’s license
Once the preapproval is done, the buyer strengthens their buying position. Now, buyers have a “walking credit card” to purchase a new home! Buyers should never start their home search without being preapproved. The preapproval is usually valid for 90 days (sometimes longer) as long as the applicant’s income, debt, assets, and credit have not worsened or rates have gone up or loan programs have been eliminated.
This is an example of a sample letter
Prequalification Sample
January 1, 2023
Ref: Prequalification for John and Jane Doe
To whom it may concern,
Based on the information provided to me, the above referenced client qualifies for the following:
| Max Purchase Price | Down Payment | Loan Program | PITI Payment | Type of Property |
|---|---|---|---|---|
| $875,000 | 20% | Fixed or Hybrid | $4129/month | Home |
Notes: The PITI payment above is based on principle, interest, taxes and insurance based on a monthly basis. Usually you only pay principle and interest on a monthly basis.
Tax Benefits
As you may know, once you purchase a home, you are entitled to the tax benefits associated with home ownership. Below you will find the purchase prices as stated above, that provide the approximate tax write off, net tax benefit, and net effective PITI payment associated with owning versus renting.
| Purchase Price | Tax Write Off Payment | Net Tax Benefit | Net Effective PITI Payment |
|---|---|---|---|
| $875,000 | $3308/month | $793/month | $3336/month |
Notes: The above info can vary based on the actual rate, payment and household income of the borrower(s). For a more complete analysis of this benefit, please contact your CPA, tax planner or accountant.
Congratulations, you are now pre‐qualified. The next step is the pre‐approval process. To start this process, we will need to meet in person, and I will need you to bring the following with you:
- Copies of paystubs for the last 30 days.
- Copies of w‐2 and 1040’s for the last 2 years.
- Copies of bank statements for the last 2 months, for checking, savings, stock and 401k.
- Copy of driver’s license or passport.
Once you have put this list of items together, please contact me to schedule an appointment. Thank you for your time and interest.
Sincerely,
Rob McCarthy
Senior Mortgage Planner
This is an example of a sample letter
Preapproval Sample
January 1, 2023
Ref: Pre‐Approval for Home Financing
Dear John and Jane,
This letter is to inform you have been pre‐approved for the purchase price of $875,000.00 based on 20% down. Your credit, income, debt and assets have been reviewed and are satisfactory to the lender.
This pre‐approval is subject to the following conditions:
- Review of preliminary title report from lender.
- Review of appraisal of property per agreed contract price by lender
- Review of purchase contract by lender
Should you have any questions, please feel free to call me. Thank you for your time.
Sincerely,
Rob McCarthy
Senior Mortgage Planner
