Over the years, the customary practice for most homebuyers has been to first find a property, and then to arrange the financing to close the sale. This process was acceptable to most mortgage lenders who typically preferred that a buyer have a specific property under agreement before beginning the process of obtaining financing. The major drawback to this approach was that both the homebuyer and the real estate broker were left wondering and waiting to see whether the buyer was going to qualify for a loan or not.
Times have changed. With new technology and a streamlined application process, today most mortgage lenders can provide "pre-approval" to prospective buyers before they begin their search for a new home, oftentimes within 24 hours.
"Pre-approval" is a relatively new idea in mortgage lending and should not be confused with "pre-qualification." Pre-qualification merely gives borrowers a snapshot of the amount and type of loan for which they may qualify, and is not customarily run through the underwriting process. In some instances, pre-qualified buyers may proceed in good faith with the execution of agreements, making deposits, etc., and patiently wait for the loan to be formally processed, only to discover that they do not actually qualify for the loan.
"Pre-Approval" allows the buyer to get actual approval for a certain loan amount before he or she begins to shop for a home. Many lenders will provide buyers with a "pre-approval" letter that may be valid for up to ninety days. Lenders and real estate brokers alike are finding that it is advantageous for buyers to obtain a pre-approved mortgage before entering into an agreement to purchase a property. All of the parties in the transaction will know that this "pre-approved" buyer has been put through the paces of formal underwriting. Particularly in a strong real estate market, Realtors prefer to deal with buyers who have been pre-approved, since such pre-approval improves the chances that a buyer's offer will be accepted by a seller.
"Pre-approval" enables the homebuyer to zero in on homes within his or her price rage, saving valuable time and energy on everyone's part. When you see your lender first, you may also be surprised to find that you qualify to buy a larger home than you thought you could afford, or that you may qualify with a lower down payment than what you thought you needed. Searching for the right home can also be stressful, particularly if a buyer has not determined beforehand his or her financial ability or program options. Simply put, a buyer does not want to discover halfway through the homebuying process that he or she may need to address heretofore-unforeseen financial issues or expenses. Pre-approval will eliminate most of these surprise issues and expenses.
Getting pre-approved is similar to obtaining an actual mortgage, except for the fact that a lender will not be evaluating a particular property. The buyer completes a mortgage application, and in most cases, lenders have staff on hand to assist buyers with properly filling out these applications. Next, the buyer's income and assets are verified, and a credit check is done. Upon clearing these hurdles, the buyer will receive a letter stating that he or she has been pre-approved for a specific loan amount.
With the computer technology most lenders use to originate and process loans, you'll be surprised to find out just how little documentation you'll need to get your loan approved.
To determine how much "house" you can afford, most lenders will ask for the following items: a) bank statements for the previous two months; b) pay stubs for the previous 30 days; c) W-2's or Federal tax returns for the most recent two years; and d) evidence of downpayment. Lenders will then determine your allowable loan amount based on a percentage of your income. For example, a potential buyer who earns $60K per year, who has a stable job, a good credit history, and approximately $10,000 in savings may qualify to purchase a home worth $200,000. Also, other Federal, State and private lending programs may be even more advantageous if you are a first-time homebuyer.
Knowing that you've been "pre-approved" by your lender will go a long way in saving you time and effort, plus it gives you the competitive edge you just might need in a very active real estate market.
|
