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3. Obtain Mortgage Pre-Approval
A. Pre-approval vs. Pre-qualification
While they both sound very similar pre-approval and pre-qualification have quite different definitions. With pre-qualification, the loan officer does a preliminary evaluation of your ability to pay for a home, providing an estimate of your mortgage amount. Pre-qualifications are not binding or guaranteed.
With pre-approval, your lender does a thorough evaluation of your ability to pay for a home, and can provide you with written confirmation of the mortgage amount. The actual approval process is handled by loan underwriters who don’t meet with the public. Knowing where you stand concerning how much money a lender will lend you based upon verification of your income, debts and credit rating, puts you in a good negotiating position. Coming to the table with a pre-approval letter from your lender demonstrates to the seller that you are committed to buying and can provide you an advantage over other buyers. Most lenders need three to six weeks for the whole loan approval process.
B. Finding the Right Lender
Shopping for a home loan is like shopping for any other large purchase; you can save money if you take some time to look around for the best price. Lower interest rates can make a big difference in how much home you can afford. In order to find the best home loan for you, contact several lenders to discuss the mortgages they offer, their rates, closing costs and other fees. Mortgage loans are available from many sources, including:
- 1. Mortgage Companies
- 2. Savings and Loan Associations
- 3. Banks
- 4. Credit Unions
Some lenders offer a rate protection option enabling you to lock in at the current interest rate but lower your interest if rates fall during the processing period. Your choice of a lender should be based on more than just the loan costs and interest rates. Carefully consider a company’s reputation, customer service orientation and ability to close a loan. It’s not always the lowest rate that will get you the best product and service. Ask your REALTOR® or friends who have recently closed on a loan for recommendations.
Also inquire about the lender’s policy on selling mortgage servicing. Servicing a mortgage means collecting payments, managing escrow funds to pay taxes and insurance and providing other customer services. Often, the lender that generates your home loan isn’t the one that will service it. HUD requires mortgage lenders to disclose information about their servicing policies and to give borrowers written notification before selling their loan servicing contracts. Problems can arise when mortgage servicing is sold or transferred as loan payments can be lost or tax and insurance payments may be delayed.
There are many questions your lender will be able to answer for you like:
- "How much of a down payment should I make?"
- "What are the best sources of cash for a down payment?"
- "What type of mortgage plan do you think would work best for me?"
- "What are the limits in seller closing cost assistance for each loan type?"
- "How long is your lock in period?"
- "How long will it take to close the loan?"
Competition among lenders is lively and smart borrowers will shop carefully to find the financing that best suits their circumstances and needs.Back to Top
C. Apply for a Loan
If you have not been pre-approved for your loan prior to making an offer on a property the seller will expect you to apply for your loan within 7 days after signing the contract. Application must be made with the lender specified in the contract and you are expected to pay for your credit report, appraisal or any other fees required by the lender at time of loan application. The lender must provide you with a Truth in Lending Statement which is a federally-required good-faith estimate of all costs associated with your mortgage and the purchase of your home.
The following checklist includes much of the information you and any co-borrower will need to supply to your lender. Different lenders may have special information requirements so you should inquire about what to bring to your loan interview. If you were pre-approved for a mortgage you may have already completed much of this process.
Mortgage Loan Interview Application Checklist
- Social security numbers and birth dates
- Most recent pay stubs showing year to date earnings
- W-2 or 1099 tax forms for the past two years
- Employer’s names, addresses and phone numbers for the past two years
- Account numbers and balances for all checking and savings accounts
- Balances for IRA’s and CD’s plus Stock and Bond values
- Value of life insurance, cars, collections, cash, furniture and other valuable personal property
- Creditor names and addresses, monthly payments and balances due on all liabilities to include auto loans, student loans and credit cards.
- If you own a home provide your address, current market value, current mortgage lender’s name, account number, monthly payment and balance.
- If you rent provide your address, landlord or management company address and monthly rent.
- Provide the same information about previous residences if you have lived at your current address for less than two years.
- If you have already agreed to purchase a property bring along a signed copy of the contract and all addendums.
- Photo identification such as a driver’s license.
Special Situation: Additional Required Information
- Applicants who are self-employed or are compensated on a commission basis will be required to show tax returns for the past 2 years and current year to date profit and loss statements.
- Applicants who are separated or divorced will need to provide a copy of their separation agreement or divorce decree and documentation about required child support or alimony payments.
- Provide copies of any award certificates for pension, disability, social security or any other forms of public assis tance benefits you wish to have considered as income.
- If you have had a bankruptcy, foreclosure or judgment against you within the past 7 years, provide documentation such as a copy of the bankruptcy discharge or attorney’s letter explaining the outcome of the proceedings.
For more information about obtaining mortgage financing visit the Mortgage Banker’s Association Home Loan Learning Center.
Congratulations, You Have Graduated to the Next Step >>Back to Top