Thursday, January 10, 2013

Pre-Approved or Pre-Qualified?

When a potential client calls for a loan, many banks just take some basic info about where you live and work and they may run a credit report.  They will then take a brief look to make sure that the income info provided offsets the monthly debt including the new house payment at an acceptable level (debt-to-income ratio).  This would constitute a basic pre-qualification.  This will help you to know what homes are comfortably in your price range.

Get Pre-Approved for Your Loan!
In order to know what price home you will get loan approval for you need to be pre-approved.  The pre-approval process is much more lengthy. (See here for details.)

Most people want to know the monthly payment when deciding what price range they will be looking in for a home and online loan calculators don’t tell the whole story. Your payment is impacted dramatically by your choice of a loan program, how much you have for a down payment, if you will need to pay mortgage insurance (for loans with less than 20% equity or down-payment) and the interest rate.

The financing you choose will often largely impact the homes you look at.  FHA and VA loans require properties to be in generally good condition.  Maybe you want to purchase a home you can renovate and so you choose a loan such as a 203k.

As part of the pre-approval process, the lender should give you a sheet showing all your lender fees in clear terms.   If the lender works closely with your real estate agent, any additional real estate fees can also be estimated upfront. This sheet should help you understand what your pre-paid expenses and closing costs will be so you can plan accordingly.   If you want to have the seller pay some of your closing costs (this is fairly typical) then your agent has to know what those costs are to properly formulate an offer.

Need a referral to a good lender?  Call me!

Need answers to your mortgage questions?  Click here:

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