Financing in San Jose>Question Details

San Jose Fir…, Home Buyer in San Jose, CA

Applying for a 30 year FHA loan in CA - three questions..

Asked by San Jose First Time Home Buyer, San Jose, CA Fri Apr 24, 2009

I really have three questions. 1. My mortgage broker is saying that volume is so high, lenders are only underwriting purchase loans in contract. This means its practically impossible to get a real pre approval letter before going into contract. Is this true? 2. Right now I can however get a pre qual letter before going into contract. Whats the difference between a prequal letter and a pre approval? 3. Also i'm in a confusing spot because I want to know the interest rate before I make an offer to help determine affordability, but the mortgage broker told me: " Once you are in contract, I can submit your loan for lender approval. At this time you will know the interest rate. Right now we can only estimate it with your credit scores and rates as of today’s date... Also do not start shopping around for an interest rate on your mortgage. No lender can guarantee an interest rate since you are not in contract." Last question.. does this sound true too?

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Answers

5
1. Not true. A DU approval and a pre approval can be done within a matter of hours
2. Ther eis a miniscule difference between a pre approval and a pre qualification letter. It's all in terminology.
3. A interest rate quote and a Good Faith Estimate are to be provided to you within three days of your inital application. Your broker is incorrect in that regard.

I am a mortgage broker. If I can be of service, please let me know.

MSmith@PrecisionFundingUSA.com

Marty
0 votes Thank Flag Link Tue May 5, 2009
Answer to Question 1:

That is not true. A pre-approval is an approval without locking a rate. Basically based on your situation and expenses and property purchase price, you can get pre-approved with either a Correspondent Lender or Servicing Lender. Correspondent and Servicing Lenders are direct lenders like B of A, Wells Fargo, etc. The pre-approval process is fairly simple. A lender will ask for necessary documents to move forward with the pre-approval process like bank statements, pay stubs, 1040's or W2's, etc. They will need to pull your credit as well. Once all necessary documents are received along with a signed 1003 (loan application) and a Signature Authorization, with just a few clicks on the computer the Lender will run what we call Desktop Underwriting or DU Underwriting. Your information will go through a series of guidelines and determine whether you are approved or not. Generally when you are approved the DU Underwriter will state "Approved/Eligible." This document can be used to make an offer. If your conditions remain the same then all you would need to do is lock the rate.

Answer to Question 2:

Pre-qualification is just taking an assumption of information and calculating Debt-to-Income ratio. This is a very vague and general ratio which determines based on the information given, whether or not you qualify for a loan. Basically it doesn't mean anything.

A pre-approval on the other hand are based on material facts that are inputed into the system to generate an actual approval.

Answer to Question 3:

Remember that interest rates change on a daily basis. To figure out your monthly payments just use an average # like 5%. The interest rates have revolved around 5%. Your qualification will probably be based on 5% interest rate. When you have ratified a contract to purchase a home, the loan officer will then lock a rate for 30 days . The day he/she locks the rate, it's whatever given interest rate for that particular day and hour. It can be as low as 4.5% and can be as high as 5.5%. Interest rates are based on the 10 year treasury note, so a loan officer can give you an interest rate for the day, but without locking the rate, the interest rate can be different tomorrow.

By the way you can shop around all you want. The lender can pretty much say that the interest rate is "Blah Blah Blah" but that is only good for the day. So when you shop around, shop around on the same day, because switching days doesn't do you any good.

Hope this helps...

Marc Yu
0 votes Thank Flag Link Tue May 5, 2009
First understand that both the Borrower and the Property must qualify for the loan.
A qualified Mortgage Broker can submit your application to an automated system for Pre Approval. This qualifies you. With this you can make a legitimate offer on your chosen property.
Next, the Contract, a Preliminary Title Report, and an Appraisal will be used to qualify the Property.
These are now submitted to the Lender for final approval. If all are satisfactory you will soon be moving in to your new home.
With an FHA loan you can expect this to take at least 10 business days.
Regarding interest rates. These are moving dynamically 24 hours a day. However, a good mortgage broker will be able to advice you on the trends and be able to lock in your interest rate as soon as the full loan application is submitted for final approval.
It may be possible to lock in a rate sooner but that is a case-by-case decision depending on whether rate are trending up or down.
Bill
0 votes Thank Flag Link Sat Apr 25, 2009
SJFTHB,

Here are the answers I can provide you:

1) No. I can provide an FHA pre-approval within an hour of receiving the documentation I would request from you.
2) Generally, a pre-qual means nothing. A pre-approval on the other hand, must address the following with real documentation; income, assets, and credit. What you want at this point is a pre-approval.
3) Many customers can get in a stand-off with the lender as they shop for a mortgage. It goes something like this, "I'll get approved with you if you give me the best rate." "I can't quote you a rate until I get you pre-approved." If you're falling into this scenario, it's time to consider building a better trust relationship with this lender or another. You're going to need this person in your corner as you go forward with this purchase. If you develop an adversarial relationship now, you're doing so to your detriment.

To quickly elaborate on Point 3, it is very tough for you to compare rates at this stage of the game. You don't know when you'll go into contract and from there, you don't know how long you'll be in contract. Both of these attributes would affect any rate lock you tried to put in place.

Finally, let's say it takes you a month to find a good lender. And let's say in that process that rates go up 1/2 point from where they are today. Right now in the Bay Area, you may find a better deal in one month on any property anyway. And that lesser sales price could ultimately mean you end up with a smaller loan, and paying less monthly overall, even at the higher rate.

1) Build the trust.
2) Build the team.
3) Build the transaction.

Good luck and let me know if I can help.

Rob Spinosa
rspinosa@mortgagemasterinc.com
0 votes Thank Flag Link Fri Apr 24, 2009
From my recent experiences with buyers in the midwest...
#1. Probably
#2. Pre-qual means based on what you have reported to the lender you can get a loan
Pre-approval, is the next step - pulling credit, verifying income - not full loan application or underwriting but close to it.
#3. True - interest rates fluctuate ALOT. You can't lock in a rate on a property you haven't found yet.

Good luck!
0 votes Thank Flag Link Fri Apr 24, 2009
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