Q&A Wednesday: What is the first step of the home buying process?

FIRST STEP

The answer: The mortgage pre-approval. 

Unless you are paying cash for a house you will need to get a mortgage. In order to know how much home you can afford, you will need to get pre-approved for a loan.

Mortgage terminology can be confusing. One important milestone to becoming a serious buyer is understanding the difference between being prequalified and pre-approved.

Prequalifying means you’ve been initially screened by a lender. It is only getting your foot in the door. Usually, you will submit some basic information, and the lender will provide a rough estimate of what you might be able to afford.Frankly, this won’t help much in your efforts to seal a handshake deal on a home.

On the other hand, preapproval takes the preliminary loan process a step further. Additional financial information is gathered, likely including a credit report. In some instances, you might be asked to provide many of the same documents that will be required to complete the actual loan process, including tax returns, bank statements and employment verification. With a preapproval letter from your lender, real estate agents and sellers know you are a serious buyer.

This letter can be shown to sellers when bidding on a property. It proves that you already have backing and the ability to go through with the sale, which makes you a much more attractive buyer to sellers.

PREAPPROVALS AREN’T A SURE THING

A mortgage pre-approval letter puts you head and shoulders above other buyers who may be interested in the same home as you are — but it’s not a guarantee. The pre-approval process does not include a full-fledged underwriting review by the lender, so it’s not an absolute commitment to issue you a home loan, though it is pretty close. There may even be conditions listed on the pre-approval that are contingent to receiving a loan.

WHEN PREAPPROVAL ISN’T NECESSARY

Delay pre-approval if you need to iron out some wrinkles in your credit history. Pulling your credit score and then determining what improvements can be made should be done before seeking pre-approval for a loan.

However, if your credit is solid and you’re on good financial footing, a pre-approval will give you the confidence and flexibility to do some serious house hunting. Your real estate agent might work even harder to find you the perfect property, and you’ll have more leverage when negotiating a price.

A typical pre-approval letter will contain language similar to this:

“This preapproval is issued based on your current credit history, income, assets and debt — assuming that there are no changes in your financial situation. This preapproval should not be considered a commitment to lend until the
following conditions are met:

  1. A valid sales contract is initiated on a specific property
  2. A satisfactory appraisal is completed on such property
  3. You select a mortgage program, which allows your mortgage payment to fall within the pre-approved amount
  4. And a rate commitment is issued by our company under the above-referenced mortgage program.”

The letter will often state an approximate purchase price that you qualify for, and usually an expiration date, often within 90 days.

Lenders want to have some wiggle room in case your financial situation changes between the time you obtain the letter and when you actually find a home and complete the loan approval process. That means it’s important to:

  • Keep your finances operating smoothly in the meantime
  • Avoid opening any new credit accounts — for furniture or anything else you’ll be planning for your new address.
  • Keep existing lines of credit paid up and without substantial balance increases.

Having a pre-approval letter in hand is often required in order to place a bid. A loan pre-approval might not be a home run, but it will get you on base.

I work with a fantastic team that help me get you into your perfect home! Jon Hasebi with Citywide is the Mortgage Loan Officer I work with, we work on a daily basis together, he is someone I trust to get the job done.
Below you will find his contact information, he will be the one to help us complete the first step in your home buying process. Please give him a call and he will be able to see what you can qualify for. You may also apply online at http://www.jonhasebichl.com/.

If you have any questions you would like to have answered on Q&A Wednesday feel free to ask them in the comment section and we will get them answered for you!

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