Mortgage Lending Made Simple

It’s everyone nightmare. You find a great Realtor, you find the perfect home. The seller accepts the offer and you begin looking forward to moving into your new home — only to find out that you can’t qualify for the loan.

Fortunately, such situations are becoming less frequent, thanks to the growing popularity of loan pre-approval programs.

Anyone who wants to buy a new home in today’s market needs a mortgage unless you are one of those very lucky one who can write a check for that new home. For the rest of us mere mortals, who need a mortgage, make the whole process much easier on yourself and the professionals you will be using to help you achieve your dreams. Get a Pre-Approval, not just Pre-Qualified, and know that when you find that perfect home you will be able to negotiate the price from a position of strength. With a Pre-Approval Realtors and Sellers will give your offer a much more positive reaction.

Today, mortgage companies are strongly encouraging real estate agents to recommend that buyers be pre-approved before they start shopping for a home. In doing so, lenders and agents work together to protect everyone’s interests and drastically reduce the likelihood of a transaction failing for lack of buyer financing.

Before examining the benefits of loan pre-approval in greater detail, it’s important to understand the difference between pre-qualifying and pre-approval.

Pre-qualifying generally refers to a lender’s written opinion of the ability of a borrower to qualify for a home loan based upon a borrower’s statement of debt and income. The statement of debt and income may or may not be supported by documentation. In issuing the written opinion, the lender may or may not have reviewed the borrower’s credit report. As such, the prequalification is only an estimate and not a commitment to lend.

Pre-approval goes a step further than pre-qualifying. It is an actual written commitment to lend, subject to the condition that when the borrower is ready to buy, he or she still meets all the qualifying conditions that were met at the time of the conditional approval. This conditional approval occurs when the borrower submits a written loan application stating sources of income, employment, debt levels and credit history. The application for conditional approval is usually reviewed in the context of a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and other costs. If all of the financial information can be verified, and the borrower meets the underwriting guidelines, the lender issues a commitment to lend for the pre-approved amount. This pre-approval is also conditioned upon the property, once chosen by the borrower, satisfying the lender’s underwriting guidelines.

Buyers who obtain pre-approved before working with a Realtor are showing their professional good sense for one simple reason. When the sales contract is signed, everyone involved will have a much higher comfort level that the loan will close. Also, Pre-Approvals result in much quicker closing.

Here are some key ways that pre-approved buyers are advantageous to everyone:

• You won’t waste time looking at houses that are priced too high or too low. Because you know how much home you can afford, you can target which homes and neighborhoods to look in.
• You may have better negotiating power with sellers. When given a choice between potential home buyers, sellers commonly feel more comforted accepting an offer from a buyer who has already secured financing.
• You know early on whether you will have problems closing. The general rule of thumb for lenders is “the more we know about the buyer earlier in the process, the better.” Pre-approval allows problems in a loan application to be addressed early. Since loan approval requires verification of items stated on the loan application, a pre-approved borrower can shop for a home while the lender simultaneously verifies financial information, saving anywhere from three days to several weeks in total processing time, once the purchase agreement has been signed.

In addition, pre-approved buyers become better educated about the lending process. The home financing process can be intimidating to anyone, but it is especially so for the first-time buyer. With pre-approval, the lender can begin educating the borrower early on about what will occur and what kind of information will be expected of them.

We all want a happy buyer who feels comfortable with the home buying process, not one who is full of doubts and anxieties. By obtaining a pre-approval early on in the process the buyer reduces their anxiety — or, better yet, potentially eliminate it before it occurs.

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