Buying Your First Home : Part 1

Home Loan Pre-Approval versus
Pre-Qualification: Pre-Approval is best

It’s important to know in advance if you qualify for a home loan to purchase a home, and if you do, just how much home you can afford based on your income and personal needs. When you enlist the services of a real estate agent to act as your Buyer’s Agent (which is strongly recommended), he or she is likely to ask you for a “Prequalification Letter” before showing you available properties. Understandably, a real estate salesperson wants to be sure that his or her time be spent working only with qualified buyers.

In the prequalification process, you tell the mortgage broker about your income, employment, rental history, what you think your credit is like and what price range you’re considering (or a specific price if you’ve identified a home). Based on that information, a Prequalification Letter can be drafted stating that [it appears] you’re qualified for a loan up to a certain amount, and a copy of the letter is then sent to your real estate representative.

Are you really preapproved for your home loan?

Depending on your actual qualifications, however, it can be a mistake to assume that you’re pre-approved for a new home loan based solely on a Prequalification Letter. This is because none of the information you’ve supplied has actually been verified and no lender has reviewed your application. This isn’t to say that the prequalification process isn’t a good idea — in fact, it’s a prerequisite to being pre-approved. By talking about your qualifications, financial goals, and other important points I’m in a much better position to assist you with obtaining your actual loan pre-approval..

Many highly experienced Realtors will only work with pre-approvedclients. If you’re a first-time homebuyer, we request that we pre-approve you as well.

Realtors and mortgage brokers’ businesses rely heavily on reputation for successful closings. The relationship between a Realtor and his or her preferred mortgage broker is also very important because this relationship is based on trust-a trust that when your mortgage broker tells a Realtor that you’re qualified for a loan that it means there is no chance that you won’t qualify for a new loan after the purchase agreement has been signed. The relationship between highly successful Realtors and mortgage brokers takes years to form in many cases, and that relationship is highly valued between both parties.

Many top-producing Realtors with successful reputations will not accept an offer from a prospective buyer based on a simple prequalification interview. They will not jeopardize their reputation and take chances with buyers that they do not know with reasonable certainty will ultimately qualify for a home loan.

As a prospective homebuyer, you should want this level of certainty as well.

Getting pre-approved for your new home loan isn’t difficult and can be done quickly. Here’s what’s needed:

  1. An up-to-date credit report is obtained by us and reviewed with you for accuracy.
  2. Your basic loan application is taken in person or by phone.
  3. If you’re qualifying with documented employment, income, and assets, we’ll request that you supply us with copies of your most recent paystubs, tax returns, and asset documentation for verification. If you’re self-employed, or if you’re being qualified with “reduced” or “no” documentation, we’ll request other appropriate supporting information needed to pre-approve you.
  4. A verbal or written verification of your current rental history or living arrangements is obtained.
  5. You’ll provide us with written proof of your down payment and closing costs necessary to close escrow. This may be a current bank statement, asset account statement, proceeds from the sale of another property, a Gift Letter, Trust Fund Entitlement or other verifiable source.
  6. If there will be a co-borrower applying with you, the same information will be required from that person if his or her income or assets are used to qualify for the new loan.

Once we have completed the pre-approval, we submit your basic application and credit report to one or more lenders for a preconditional review. The lender’s loan representative will ok the basic application for submission, or in some cases, list any conditions necessary to pre-approve the loan when it is formally submitted later (after you’ve found a property and your offer has been accepted). We’ll review any lender pre-conditions with you before you start shopping for your new home and help resolve these conditions with you.

We then submit your Home Loan Pre-Approval Letter to both your Realtor and the Seller’s Agent along with a signed-off checklist of the above items so he or she can know that all of your most important qualifications have been obtained, reviewed, and verified. Equally important is the fact that you can be confident that you’ll soon be a new homeowner!

As a prospective new homebuyer, the most important thing you can do beforeyou start shopping for a new home is to become pre-approved for your new home loan. At the same time, I can review different loan programs, rates, and terms available to help you pick the best home loan for your situation, so the pre-approval process is a very productive time for both you, me, and the Realtors involved in your transaction.