Lending is a lot tighter than it used to be. During the height of the housing bubble loans were large and plentiful, but the new lending market is a lot more discerning. Don’t let that scare you, though. Part of the description of the lending market as tough is in comparison to how very lax it once was. Potential homeowners can get great loans and it isn’t as strict or difficult as you might think.
Getting a mortgage loan typically starts with pre-approval. Getting a pre-approval before you even begin house hunting will help you to determine your cost range and allow you to make an earnest bid on the home you want. Buyers with pre-approval are more likely to achieve full approval, so sellers pay more attention to their offers and are more likely to view pre-approved buyers as serious and worth negotiating with.
Applying for Pre-Approval
In order to apply for a mortgage loan pre-approval, you’ll need to gather some basic information. If you are entering into the loan jointly with another person, you’ll need that person’s information as well. Basic information you should have includes:
• Name, current address, social security number, date of birth, and other identifying information.
• Addresses and employment history for the past 2 years
• Total Gross Income (before tax and deductions) and employer contact information
• Total debts and obligations, cash accounts and savings, and “reserves” (such as property and investments)
Pre-approvals can be obtained in person, over the phone, or online. Whichever route you take, pan on taking about 20 minutes to complete the application. In person and phone approvals often use electronic underwriting programs or in-house underwriters that can return a pre-approval right away, while online applications may take a bit longer to be processed and returned. Buyers should be ready to present a copy of their pre-approval letter so that agents or buyers may verify it.
From “Pre” to Approved
A pre-approval is NOT a guarantee of a loan, but it is a clear indication of likely approval so long as all of the information provided is proven correct, and the home in question is deemed loan-worthy. Approvals don’t happen until your offer is accepted and you sign a contract. Then the lender reviews the loan application again using the home’s features, appraisal, purchase price, and other details to determine if they will approve the loan for that amount. Some loans require specific home features (such as the health and safety requirements associated with an FHA loan), while all potential loans will typically require that the home be appraised in value as at least equal to the agreed-upon purchase price. If the home is determined to not be worth the cost, the loan will be denied. Appraisals can be contested, or the seller may make improvements to increase the home’s value to try for approval again.
Once you get full approval, you’re on your way to closing and your new home!
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About David Goldstein — David Goldstein is an Owner and Founding Partner of Express Schools, LLC. which operates online education providers Real Estate Express, Insurance License Express and License Tutor. Follow him on Twitter.