Showing posts with label pre approval. Show all posts
Showing posts with label pre approval. Show all posts

Oct 26, 2014

The Importance of a Pre-Approval in a Seller’s Market

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Urban Myth "A pre-approval will lower my credit score" 

I'm often contacted by buyers that want me to show them apartments. Often these buyers do not know how much apartment they can afford. They require financing but have not been in contact with a lender.

I recently spoke with a buyer that was interested in one of my listings. When I asked if she was pre-approved for a co-op loan she told me that she didn't want to get pre-approved because it would lower her credit score. 


An "urban myth" and not a valid reason to not get pre approved before looking for an apartment in Manhattan. A credit score may have a temporary glitch after several inquiries although an inquiry is not an application for credit. This first time buyer told me "she begs to differ" and that she didn't want to get a pre-approval every time she viewed a property

The Importance of a Pre-Approval in a Seller’s Market

The lenders I work with and recommend will pre-qualify and pre-approve a buyer for several months at a specified maximum amount. 


The pre qualification informs sellers and their brokers based upon the information received, the lender is indicating that the applicants’ financial, credit, and income information appear to support their eligibility for the loan amount listed on pre-approval letter. It is not a loan commitment. A loan commitment may be issued following the applicant’s consent to move forward with the loan, the payment of any fees, a satisfactory appraisal and underwriting approval.

Buying a home and getting a mortgage is one of the biggest and most important lifetime financial decisions and a primary reason why a consumer should be concerned about their credit score. In my professional opinion and experience if an inquiry on your credit report from a mortgage lender has an adverse effect that lowers your credit score enough to affect the interest rate offered or your loan eligibility you have bigger issues than a couple of inquiries from lenders. Paying bills on time and paying down debt matters a lot more.

Lenders are competitive. They also know how to read a credit report. They understand a buyer may be shopping for a mortgage when shopping for a home. In fact, if they see their competitor's inquiry on your report it may be leverage to your advantage. If one lender wants the business they may try to offer a better deal than their competitor.


Understanding The Related Costs of Apartment Buying


You'll need to think about more than a mortgage payment to determine if you can afford an apartment in Manhattan. To assure you are purchasing a home within the confines of your budget, you must consider down payment requirements, closing costs, taxes, carrying charges, and yearly maintenance requirements as well.

How much can you afford?


First consult with a mortgage broker or banker to determine how much of a mortgage you qualify for. Calculate the estimated mortgage payment plus monthly maintenance (coop), common charges and real estate taxes (condo).

Several formulas exist to help determine how much a lender will allow a consumer to borrow. One of the more accurate formulas is a front- and back-end ratio. It states that the buyer can afford as much as 28 percent of his or her gross-monthly income toward the monthly mortgage payment, assuming that the consumer's other debt payments (credit cards, car loans, student loans, etc...) are less than or equal to 8 percent of his or her gross-monthly income.

Most NYC coops have more stringent financial requirements than most lenders. Most coops use a 25%-30% debt to income ratio formula. Many coops will only allow a maximum of 75% financing although some will allow 80%. Coops may also require liquid assets available after the closing to cover 2 years worth of maintenance or 1 year of mortgage and maintenance. Every building varies and uses their own formula.

While condos and some coops will allow 90% financing a seller may not want that risk and lenders will require PMI (private mortgage insurance) increasing the debt to income ratio. A minimum 15% or 20% down payment may be required. 

Manhattan mortgage bankers and brokers






 
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May 13, 2014

How Much Apartment Can You Afford?

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I'm often contacted by buyers that want me to show them apartments. Often these buyers do not know how much apartment they can afford. They require financing but have not been in contact with a lender.

Understanding your financing needs before you search for a new home will help you move ahead quickly and confidently when you find the right home. Before you start looking for an apartment in Manhattan you should be pre-approved and qualified by a lender. 


I originally posted How much Apartment can you afford? in 2009 while the Manhattan real estate market was declining. 

Currently there is limited inventory in Manhattan with pent up demand from buyers. This market calls for swift and aggressive action. Buyers must be ready, willing, able, prepared and qualified.

Understanding The Related Costs of Apartment Buying  

You'll need to think about more than a mortgage payment to determine if you can afford an apartment in Manhattan. To assure you are purchasing a home within the confines of your budget, you must consider down payment requirements, closing costs, taxes, carrying charges, and yearly maintenance requirements as well. 

How much can you afford? 

First consult with a mortgage broker or banker to determine how much of a mortgage you qualify for. Calculate the estimated mortgage payment plus monthly maintenance (coop), common charges and real estate taxes (condo). 

Several formulas exist to help determine how much a lender will allow a consumer to borrow. One of the more accurate formulas is a front- and back-end ratio. It states that the buyer can afford as much as 28 percent of his or her gross-monthly income toward the monthly mortgage payment, assuming that the consumer's other debt payments (credit cards, car loans, student loans, etc...) are less than or equal to 8 percent of his or her gross-monthly income. The maximum back-end is typically 36%.

Most NYC coops have stricter financial requirements than most lenders. Most coops use a 25% -30% debt to income ratio formula. Many coops will only allow a maximum of 75% financing although some will allow 80%. Coops may also require liquid assets available after the closing to cover 2 years worth of maintenance or 1 year of mortgage and maintenance. Every building varies and uses their own formula. 

While condos will allow 90% financing many sellers today will not risk accepting an offer requiring a  financing contingency with such a small down payment. When a bank agrees to lend 80% (or 90%) loan-to-value, they are indicating their willingness to finance up to 80% of the purchase price.  

If the appraised value happens to come in at $500,000 instead of the contracted purchase price of $600,000, the lender will ultimately finance 80% of the lower of the two—in this case the appraised value of $500,000.  Unfortunately, this means the buyer may have to scramble to find more cash to put down. 

A minimum 20% -25% down payment may be required. Understanding your financing needs before you search for a new home will help you move ahead quickly and confidently when you find the right home.



 
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This blog site is designed and published as a consumer service by local real estate broker to help Manhattan, New York City buyers, sellers and renters make informed real estate decisions. This site and its feeds are owned and operated by Mitchell J Hall, a NY State licensed real estate associate broker associated with The Corcoran Group and member of the Real Estate Board of New York.

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