Financing & Lender Approval
A strategy for a successful purchase is to apply for pre-approval prior to finding a home. You can contact a lender of your choice or we can give you a list of lenders our clients have worked with and we have confidence in referring. Applying for a loan and obtaining approval before finding a home to buy can give you distinct advantage. Negotiating a contract with a loan commitment can be advantageous to you, as it offers peace of mind to the seller you are qualified to purchase their home.
There are specific things necessary to make a loan application, and assembling them can take some time. It is recommended to begin the loan process before anything else. Be sure you have a lender meeting so you understand the difference between pre-qualified, pre-approved and fully underwritten. This meeting will also give you an opportunity to decide which loan program is best for you and how/what to prepare for your loan approval.
A lender has three main jobs which are to:
· Assess risk, which is determined through credit reports, down-payment and what type of property you will be buying.
· Determine your ability to repay the loan based off of qualifying monthly income and identifying monthly debts.
· Educate, structure and set expectations for the loan. For most people this is the largest debt and asset of their lives, which is why finding the right lender is so important.
Once a lender is identified, the next step is to get pre-approved which is recommended to begin the loan process.
To get pre-approved the lender will look at The Big Four: Job History, Income, Assets and Credit. It’s important to know the difference in the types of approvals:
The pre-qualification is based off a conversation with a lender. You may have one or two of the “Big Four” verified. The pros to this is that you can show interest quickly to a seller if you aren’t pre-approved but it isn’t worth much in a competitive market where you are competing against other buyers that may be further along in the pre-approval process.
A pre-approval means the Big Four have been verified, and is subject only to finding the home and the home appraising at the sales price. The “pre-approval letter” represents an actual commitment on the part of the lender. In order to secure such a letter it is necessary to complete a formal loan application, pay the associated fees (if applicable) and provide documentation required to verify job history, income, assets and credit. If the loan is a good investment, the lender will issue a pre-approval letter, which provides a commitment for a limited period of time.
An underwritten approval means you have a loan waiting, subject only to finding the home and the home appraising at the purchase price. You as a buyer have had your credit pulled and an underwriter has reviewed all the documents you have provided. The advantage to having an underwritten approval is you can often shorten the time it takes to close, if a seller needs a quick close.
Loan Types, Down payment, Closing Costs and Out of Pocket Expenses
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