September 26th, 2011 8:23 AM by Richard T. Cirelli
A “Pre-Approved Buyer” Has the Advantage!
The Pre-Approval process is one of the most important but often neglected parts of the home buying process. A pre-approval should always be obtained before a buyer even begins to shop for a home, no matter how well-qualified he or she thinks they are. Today’s mortgage qualification guidelines are full of potential traps that can prevent even a seemingly well-qualified buyer from being approved. A qualified mortgage expert can help a buyer in many ways if the pre-approval process is started early.
Pre-Approval vs. Pre-Qualification
First, let’s define the difference between a Pre-Qualification and a Pre-Approval
A mortgage loan pre-qualification is simply an estimate of how much house you can afford and how much money a lender would be willing to loan you. This usually involves verbally providing information on your income, assets, debts, and a potential down payment amount to a lender. That lender would then provide you with an estimate of how much you could afford to pay for a monthly mortgage. There is no cost or commitment on either side. This estimate is just helpful in helping you figure out if buying a home is a viable option, and if so, what your price range would probably be. But, the lender did not verify your credit, income or assets, and it may not be worth the piece of paper that it is written on.
Getting pre-approved means that you have a tentative commitment from a specific lender for mortgage funding. In this case, you provide a qualified lender with actual documentation of your income, assets, and debts. This process requires an application and a credit report. Your loan application with credit information should be input into the Fannie Mae/Freddie Mac automated underwriting System to obtain an Approval. These Approvals are accepted by all lenders. If there is any doubt about your qualifications, the lender should also review it with an underwriter.
Once pre-approved, the lender will issue a letter of commitment, stating how much money they are able to lend for a home purchase. With a pre-approval in hand you can start your shopping. Real estate agents and sellers will take you much more seriously when they see you have your mortgage funding in place.
It is important to understand, however, that even a pre-approval is still not a guarantee that you will be approved for a mortgage loan. The funding will only be given when the property appraisal, title search, and other verifications check out on the home you have chosen to buy.
The pre-approval only takes a day or two once you provide the income and asset documentation.
What You Need for Pre-approval:
· Most recent paystubs covering a 30-day period
· W-2s for the two previous years
· If self-employed, personal and business tax returns from the last two years
· Two months of bank statements for each Bank, Investment & Retirement account
· Loan documents on your current home (if applicable)
Benefits of Pre-Approval
· Allows time to improve credit scores and structure your financing to obtain a better rate. Sometimes just 1-point in your credit score can affect the rate or even disqualify a buyer
· Strengthens your offer – particularly helpful when there are multiple offers
· Sellers will be more likely to immediately accept your offer, because you are giving the seller peace of mind that their home is sold and it’s OK to take their home off the market
As you can see, a pre-approved buyer has the advantage when shopping for a home. Just make sure that you are being pre-approved by a knowledgeable, reputable mortgage professional that has taken the time to review your documentation, run your credit and provide advice to structure your financing with the best possible terms for you.
Mortgage Rate Update: Another All-Time Low!
Yesterday 30 year mortgages had one of its best days in over a year. The Fed at one of their pre-scheduled FOMC meetings did what markets were expecting, plus more. The view prior to the FOMC policy statement at 2:22 yesterday was that the Fed would institute "Operation Twist" as it has been dubbed, selling shorter dated notes and replacing them with longer term notes and bonds to drive down long-term rates. The amount of shifting was expected to be about $300B, the Fed said it will be $400B. The Fed however surprised markets with the announcement it would turn back to buying Mortgage-Backed Securities (MBS’s) with principle pay downs on MBSs it now holds and instead of investing back into treasuries as it had been doing, investing in more MBSs. The reaction was swift in the mortgage market as MBSs soared in price and interest rates dropped.
The possibility of default by Greece and concern of an international recession have also helped to drive down rates this week in the MBS markets.
Whether buying or refinancing, my best advice is to act NOW!
You can follow the advice on whether to lock or float by reading the Daily Rate Advisory on my website. Just click here: