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Once your financial picture and documentation are in order, it’s time to choose the right mortgage broker or lender and loan. Below are important points to consider in choosing your mortgage broker or lender, and some of the many types of loans available.
Below is a summary of upfront costs and financial terms that contribute to financing a real estate investment.
A pre-qualification letter is an opinion from a lender of the maximum amount of real estate for which you may qualify for financing and is based on less information than is required for getting pre-approved. In a competitive seller’s market, a pre-approval letter carries more weight than a pre-qualification letter, because you know exactly how much real estate you can afford, it reduces the amount of time it takes your lender to fund your loan, and your offer is better positioned than someone less prepared.
To attain pre-approval, be prepared to provide comprehensive documentation to your lender, which they may independently verify. This documentation should be gathered in your green file and include recent pay stubs and two years’ tax filings to show your employment status and income, the past three months’ bank statements to show cash on hand and monthly debt payments, and any other statements showing your total assets and debts.
Lenders have analysts called underwriters who crunch your numbers and verify your documentation to confirm your ability to repay the loan. Once you are in contract on a property, there may also be a loan approval committee that meets to review the underwriters’ conclusions regarding your creditworthiness and evaluate the property on which they are lending. This is called the underwriting process, and questions are bound to arise. Check in with your broker periodically and always return your mortgage broker’s calls promptly to keep the process moving forward smoothly.
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