We Make Buying Your Home Easy!

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Ralph Waldo Emerson, American essayist and poet, once said that the future belongs to those who prepare for it. This is sage advice for home buyers who need to lay the necessary groundwork to buy the home of their dreams.
 

Without good preparation, many buyers get lulled into the mistaken notion that if a lender pre-qualifies them for a mortgage this means that they have been pre-approved for a home loan. Unfortunately, there's a world of difference between these two terms. If you've ever been confused by the two, this article will bring you up to speed on how these two terms differ - and why a misunderstanding can mean disaster for borrowers. 

Getting pre-qualified is the initial step in the mortgage process, and it's generally fairly simple. You supply a bank or lender with your overall financial picture, including your debt, income and assets. After evaluating this information, a lender can give you an idea of the mortgage amount for which you qualify. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved. Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home.
 

The initial pre-qualification step allows you to discuss any goals or needs you may have regarding your mortgage with your lender. At this point, a lender can explain your various mortgage options and recommend the type that might be best suited to your situation. 

Because it's a quick procedure, and based only on the information you provide to the lender, your pre-qualified amount is not a sure thing; it's just the amount for which you might expect to be approved. For this reason, a pre-qualified buyer doesn't carry the same weight as a pre-approved buyer who has been more thoroughly investigated.   

Getting pre-approved is the next step, and it tends to be much more involved. You'll complete an official mortgage application (and usually pay an application fee), and then supply the lender with the necessary documentation to perform an extensive check on your financial background and current credit rating. (Typically at this stage, you will not have found a house yet, so any reference to "property" on the application will be left blank). 

From this, the lender can tell you the specific mortgage amount for which you are approved. You'll also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to “lock-in” a specific rate.    With pre-approval, you will receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. Obviously, this puts you at an advantage when dealing with a potential seller, as he or she will know you're one step closer to obtaining an actual mortgage.
 

The other advantage of completing both of these steps - pre-qualification and pre-approval - before you start to look for a home is that you'll know in advance how much home you can afford. This way, you don't waste time with guessing or looking at properties that are beyond your means. Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place. When you make an offer, it won't be contingent on obtaining financing, which can save you valuable time. In a competitive market, this lets the seller know that your offer is serious - and could prevent you from losing out to another potential buyer who already has financing arranged.
 

Once you have found the right house for you, you'll fill in the appropriate details and your pre-approval will become a complete application. 

The final step in the process is what's called a "loan commitment", which is only issued by a bank when it has approved you, the borrower, and the house in question. This step will happen toward the end of the escrow process. This means the home should be appraised at or above the sales price. The bank may also require more information if the appraiser brings up anything he or she feels should be investigated (i.e. structural problems, accessibility issues, outstanding liens or litigation in progress). Your income and credit profile will be checked once again to ensure nothing has changed since the initial approval. 

A loan commitment letter is issued only when the bank is certain it will lend, so the commitment date on your purchase contract should be closer to closing escrow than to the date of your purchase offer.

In recent years, mortgage guidelines have been tightened. Documentation requirements have been expanded and followed more closely. A pre-approval gets you through the process and uncovers potential pitfalls long before you become obligated by a contract to purchase.

You'll be certain about the price range that's best for you. You'll know how much cash you'll need to close and know your maximum monthly payment. Understanding your limits will help you negotiate with confidence. Plus, since sellers like a sure thing, you'll have an advantage over buyers who may not have been through the process. 

Your pre-approval is typically good for the "shelf life" of the documents used. These will include a credit report, pay stubs, bank statements ,  W2s, tax returns, etc. The usable life of these documents will vary, yet it's usually safe to say that your approval is good for up to three or four months. During this time, it pays to file all important financial documents so they're readily available for future updates.

That's perfectly fine. There's no obligation to purchase a home or use a particular loan program once you've been pre-approved. In fact, pre-approval simply helps to assure you know exactly what's involved, that you are comfortable in a particular price range and that you are truly ready to make your move.

The process of purchasing a home is easier when you have financing in place before you make an offer. 

Be warned. “Pre-approved” and “pre-qualified” are not the same thing. 

Don't assume that your lender will provide your loan until they have provided you with the “pre-approval” letter. This mistake could cost you your new home!  

New Start Realty Group through our many years of experience has developed very good, professional, working relationships with several Mortgage Loan Specialists who provide exceptional service and get exceptional results for our clients. We will be happy to introduce you to these professionals to make your mortgage loan process easy, comfortable and successful.