Pre-Approval – More than Just a Letter from a Mortgage Company

If you have spent any time at all searching for a home to purchase, you have most likely heard about the importance of getting pre-approved for a loan. What exactly should I expect as a Northern Virginia homebuyer when getting pre-approved?
In Virginia it is standard to submit a copy of a pre-approval letter from a reputable lender to the seller when submitting your offer to buy a home. Without that letter the seller doesn’t know if you have the financial means to buy their home. A seller will not agree to your offer and take their home off the market until you provide proof of your ability to get to the settlement table.
It is quite easy to get pre-approved, but sometimes that ease of going online and getting a quick letter from an online lender will not be enough. Yes, the letter will serve as proof of finances to the seller but if ALL you get is the letter you will be scrambling later to understand the detailed breakdown of the one time and monthly costs.
Here is what you need to buy to know PRIOR to buying a home in Fairfax, Prince William, or Loudoun County Virginia.
Ask your lender for a cost of settlement estimate. This is a written document with two important sections. The first section outlines all of the one time costs of getting a loan: down payment, settlement fees, title insurance, loan points, and taxes. Yes, you get to pay taxes when buying your Northern Virginia home!
The second section outlines the amount of money collected each month and put into escrow to pay your real estate taxes and your homeowner’s insurance. In Northern Virginia real estate taxes are collected at the county level twice a year. Your mortgage company will collect 1/12 of the annual real estate tax as part of the mortgage payment and pay it to the county twice a year when due. The same is true of your homeowners’ insurance. A portion is collected each month and added to your mortgage payment and paid out annually.
The final part of the Estimated Cost of Settlement is what your monthly mortgage payment will be. The amount is the sum of your loan principal, loan interest, real estate taxes, and homeowner’s insurance. Depending on how much your down payment is there may also be a line item for primary mortgage insurance.
The bottom line is, BEFORE you go look at homes in person you should know that if your buy a home for $725,000 that will equal $XXXX in monthly mortgage payment. Once you have that baseline number you can easily in your head adjust your payment up or down depending on the sales price. A good rule of thumb is to add or subtract $60 to your monthly payment for every $10,000 increase or decrease of sales price.
Lenders can run several scenarios for you comparing different loan programs for you to see which one works best for your financial situation.
Why do I spend so much time on making sure you are armed with all this information before we start looking at houses? The answer is simple, when we find you your next home the emotions are high and the excitement is tangible. In our current market there is still a chance that you will be competing with other buyers for the same home. You need to have all the financial information at your fingertips so that you can be ready to make an offer knowing what your mortgage payment and closing costs (one time fees and escrows) will be.
Pro-Tip: There are no end of mortgage calculators online and I encourage you to play around with them. However, please remember that a lot of times they are only calculating the principal and interest and do not include the taxes and insurance portion.
The local lenders I work with will readily provide you with a custom cost of settlement estimate on a per home basis but even for them having an initial estimate created within your price range and then simply tweaking it for that particular home is far faster than waiting until you fall in love with a home and building that document from scratch.
Armed with a pre-approval letter and estimated cost of settlement sheet you are ready to start shopping!