Obtaining Loan Pre-Approval
Qualify Before You Buy
Few people can buy a home for cash. According to the
National Association of REALTORS®, nearly nine out of 10
buyers in 1999 financed their purchase, which means that
virtually all buyers -- especially first-time purchasers --
required a loan.
The real issue with real estate financing is not getting a
loan (virtually anyone willing to pay lofty interest rates
can find a mortgage). Instead, the idea is to get the loan
that's right for you -- the mortgage with the lowest cost
and best terms.
Realtors routinely suggest that consumers start the mortgage
process well before bidding on a home. Many lenders (the
sources of money) and programs are available through
recommendations from local professionals. By meeting with
lenders -- either online or face to face -- and looking at
loan options, you will find which programs best meet your
needs and how much you can afford.
Realtors also recommend pre-approvals for another reason:
Purchase forms often require buyers to apply for financing
within a given time period, in many cases, seven to 10 days.
By meeting with loan officers in advance and identifying
mortgage programs, it won't be necessary to quickly find a
lender, check credit, and rush into a financing decision
that may not be the best option.
What is It?
"Pre-approval" means you have met with a loan officer, your
credit files have been reviewed and the loan officer
believes you can readily qualify for a given loan amount
with one or more specific mortgage programs. Based on this
information, the lender will provide a pre-approval letter,
which shows your borrowing power. You can visit as many
lenders as you like and get several pre-approvals, but keep
in mind that each one carries with it a new credit check,
which will show up on future credit reports.
Although not a final loan commitment, the pre-approval
letter can be shown to listing brokers when bidding on a
home. It demonstrates your financial strength and shows that
you have the ability to go through with a purchase. This
information is important to owners since they do not want to
accept an offer that is likely to fail because financing
cannot be obtained.
How Do You Get Pre-Approved?
Real estate financing is available from numerous sources,
including lenders on this site, mortgage companies that have
worked with local Realtors and in some cases, banks. Based
on his or her experience, the Realtor may suggest one or
more lenders with a history of offering competitive programs
and delivering promised rates and terms.
The loan officer will carefully review your financial
situation, including your credit report and other
information. The lender will then suggest programs which
most-closely meet your needs. For instance, a first-time
buyer may use down payment assistance with no money down and
low interest rates, while a repeat purchaser (someone who
has bought a home before) with more equity (money invested
in the home) might want to get a 15-year loan and the lower
overall interest costs it represents. Typically, first-time
buyers opt for the traditional 30-year loan, with either a
floating interest rate or a fixed rate of interest over the
life of the loan.
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