Once you’ve found a Realtor to guide you through what will likely be the biggest financial transaction of your life, step 2 in buying a home is to get preapproved by a mortgage lender. As Realtors, we won’t submit an offer on a home unless you’ve been preapproved. Additionally, it’s essential to have a clear understanding of what you can comfortably afford to spend, what your monthly payments will be, the interest rate you qualify for, and how much you’ll pay each month in taxes, insurance, and other costs.
Having a reliable mortgage lender is crucial to ensuring a smooth process. Working with a subpar lender can cause significant headaches, delays, and even jeopardize the closing of your transaction. You may also end up regretting your choice for years if you pay a higher interest rate than necessary due to not shopping around for better options. A disorganized lender could also cause you to lose out on your dream property because they couldn’t get you fully approved during underwriting. That’s why it’s important to choose the best. We recommend:
Our Recommended Lenders
Paperwork You Need To Gather
Each lender may have slightly different requirements for documentation, but generally, you will need to provide the following:
- A completed application (provided by the lender)
- The two most recent months (or a quarterly statement) of asset information, such as checking, savings, 401(k), mutual funds, stock accounts, IRAs, etc.
- The last two pay stubs if you are a W2 employee
- The last two years of W2s (e.g., 2022 and 2023)
- The last two years of US Tax Returns (e.g., 2022 and 2023 Federal Tax Returns)
- The last two years of Corporate Tax Returns (if self-employed and owning more than 25% of the company)
Getting a Pre-Approval Letter
After submitting the necessary paperwork, you should typically receive a pre-approval letter within 2-3 business days. The lender may request additional documentation, not to be difficult, but because underwriting has become stricter since the housing bubble burst. In addition to the pre-approval letter, ask your lender to provide an estimate of your monthly mortgage payment, including PMI (Private Mortgage Insurance), taxes, and insurance, so you can be sure the payment is comfortable for you. Once you’ve received your pre-approval letter, forward it to us so we can be ready to submit your offer.
Ask About Free Money
New York City offers several grant programs for home buyers, where the state or local government may provide free money toward your down payment or closing costs. Check with your mortgage lender to see if you qualify.
Get a Loan Estimate and Understand Your Closing Costs
Lenders are required to provide you with a Loan Estimate (LE) within three days of receiving your pre-approval. The LE outlines your estimated closing costs on top of your down payment, and the lender’s fees. Closing costs in NYC are typically around 2.5% of the property purchase price. If you’re buying a $1 million home and putting down 20%, you’ll need to have $250,000 available at closing ($200,000 for the down payment, plus approximately $50,000 for closing costs). Keep in mind that appraisal and inspection fees are due when those services are provided, but the rest is typically due at closing.
Should You Shop Your Loan Around?
Definitely. Since every lender has different fees and interest rates, it’s essential to compare at least two lenders. Make sure the credit reports are pulled on the same day, as this minimizes the impact on your credit score. Also, compare interest rates on the same day, as they can change even within a single day. If you aren’t comparing rates on the same day, it’s like comparing apples to oranges.
Questions about the pre-approval process? Just call us at 718-374-3700 or email us at realestateclassicllc@gmail.com