What is a pre-approval and why do you need it?
When shopping for a home, you're going to be asked at some point whether you've been "pre-approved" or whether you have mortgage "pre-approval." You're going to want to answer "yes" to these questions -- buyers who can are in a much better position to purchase a home. Why? Read on to find out.
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What is pre-approval?
In real estate lingo, to say you have been "pre-approved" or that you have mortgage "pre-approval" means you have a commitment in writing from a lender to lend you a specific amount to buy a home under certain conditions (e.g., length of the loan and interest rate). A pre-approval holds more weight than a loan pre-qualification, which is an estimate of how much you may be able to borrow.
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Why is it important?
It's important to have pre-approval for several reasons: It will let you know how much you can spend on a home and the size of mortgage you'll be able to obtain, it will give you an advantage when it comes time to bid on a property, and it will speed up the process when you find a home you want to buy.When you have a pre-approval letter for a loan, you'll know exactly how much you can borrow, and possibly the length of the loan (15 years, 30 years, etc.) and your interest rate. This will give you an idea of how much you can spend on a home and what your monthly payments will be like should you purchase the property.
Buyers prefer sellers who have their financing in place. They don't want to choose a buyer who seems to be a qualified buyer, but can't come up with the funds to buy the house.
If you are pre-approved with a reputable lender, you may be able to win a bid over another buyer should multiple buyers be interested in a particular home -- even if the offers from the other buyers are higher.
When it comes time to place an offer on a home, having a pre-approval letter will speed up the process. That's because you won't have to wait to hear from a lender as to whether or not you've been approved.
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How do you get it?
You'll want to talk to a few lenders to search out loans that will best suit you and your financial situation. The lenders will require certain information, including: your income, your employment situation, how long you've been employed, and any debts you may have -- e.g., student loans, car loans and credit card debt -- and the source of your down payment.
You may be asked to show your tax returns, bank statements and W2 forms. The lender will use this information to determine the maximum loan you can qualify for and your monthly mortgage payment.
The lenders will also check your credit report and whether you have funds for a down payment and closing costs.
But, even when you do get pre-approved, remember that there are some caveats: Pre-approval letters can be time-sensitive and are subject to an appraisal on the home you're purchasing, so while a pre-approval gives you a firm idea of how much you may be able to borrow, it's still not a concrete guarantee that you'll get the loan.
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When you're in the market to buy a home, your credit score is very important. Most lenders use this three-digit number (which is created by evaluating factors like how much debt you have, your payment history for things like credit cards and car loans, and ...
By Trulia | 20 Comments
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Same thing with cars and credit cards get your scores from a credit source like myfico.com and then correct errors first, 620 plus will be ok for a car loan, the ask for the manufacturers financing if at all possible on report and if you can qualify the secondary lenders should accept the first report so you dont have to pull mutiples.
I just had a client that cannot buy because of this please dont let it happen to you.
We look for these Items
A 620 + Beacon Score
2 Years Verifiable employment
29% Income ratio
41% Debt Ratio
2 Years tax returns that correspond to the income
Sales Contract.
This loan I can close most buyers with 100% USDA or FHA 3.5% Financing in Suburban and rural areas in 5-7 days.
Seller consessions and Gifts take a little longer.
Other types of credit and loans we have to work on and work with the situation we can assist you in getting to a 620 score sometimes in as little as two days, verifying income through other sources such as small business owners option is a CPA's review of financial statements and Co signers for those that cant make the debt ratio's.
25 months out of Bankruptcy and letters of explanation and alot of me begging my Executives you can buy a home with a 620+ Beacon.
How much you put down is really not viable anymore except to lower the debt and income ratios to get a loan.
While we hear this is a buyer's market. Sellers are going to what to know they are working with a legitimate buyer. If you have a preapproval letter in your hand and with your offer, the Seller knows you are prepared to move forward with your purchase.
This also applies to the purchase of the many bank owned properties that are very good buys. The bank may even want you to be preapproved by their loan officers, even if you don't intend to use that bank to make the purchase.
Dave Nuss, Oregon Licensed Real Estate Broker/Realtor
http://www.Homes-SalemOR.com
Also you have a window when getting your credit checked. A handful of credit checks by several mortgage lenders within a period of time (45 days last time I researched it) ALL COUNT AS ONE CREDIT PULL. Feel free to shop mortgages, rates, and lenders. Once you know your credit score, or have a credit report (pulled by a lender) in hand, you can use that data to shop rates (generally speaking). For the initial credit check, you may be hit for a few points or double-digit points, depending on the buyer's specific credit profile. Check out more about credit here ... http://njmortgageblog.com/channels/consumer_mortgage_finance/topics/credit_scoring
Also, you don't need to "shop" for a pre-approval. Find a professional you trust that knows what they are doing and allow them to do their job. As long as the professional you choose has ethics, you will get a good deal. When you shop around you place more stress on yourself during an already stressful transaction. Enjoy the home buying process!
If you have bad credit, your lender should be able to give you some pointers on what you need to do to be able to buy in the future. Typically, most lenders have overlays that don't allow financing with less than 620 fico score. There may still be some lenders willing to do it, but don't be surprised if the rates and fees are high.
Feel free to contact me directly when you are ready to go forward!
Thanks for taking the time to write this.
TG
http://www.elliottoliva.com/preapprovedvsprequalified
Also, you are not penalized a point per credit inquiry. Please refer to this article for more details about how credit works as well as inquiries.
http://www.elliottoliva.com/youandyourcredit
To answer Loretta's post....Loretta, changing jobs can most certainly impact your pre-approval and ability to get Loan Commitment. Employers in this market want to see long-term provable income. When switching jobs they want to see that the new position is stable. Two things that might swing lenders to approve a loan for you sooner after job switch are low debt to balance and debt to income ratios, and your liquid capital. Perhaps you have already made the switch and have several months of provable income and this no longer matters.
All answers appreciated.
Highest and best regards,
Vincent Paige
REALTOR® | Century 21 Elite Home Finders
Certified BPO Specialist
5401 S. Kirkman Rd., Ste 725 | Orlando, FL
Direct: 407.256.8190 | Fax: 407.264.8073
Visit http://www.ThePremiumProperties.com and find your dream home today!