When shopping for a home, it is very important to do two things prior to beginning your home search. The first is to understand what amount you are capable of paying each month for your new mortgage payment (that could include taxes, insurance and mortgage insurance). The second is to speak with a loan officer to become pre-approved for a mortgage. This is important for two reasons. We want the seller and the listing agent to take our offer seriously when you find the perfect home and after everything is said and done, you are the one who is responsible for making the payment each month to the mortgage company so it important you feel comfortable with the monthly mortgage expense in order to purchase your home.
There are two types of mortgage approvals. A pre-qualification and a pre-approval are viewed differently in the seller’s eyes.
- Pre-Qualification is establishes how much you can borrow only. It is not an assurance of mortgage approval. With a pre-qualification, the loan officer verbally as has verified your income and assets. At this time, they would have obtained a credit report. Until the information provided verbally is verified, the approval is only considered qualification.
- Pre-Approved is a firm decision on a home loan and it gives your increased bargaining power. With a pre-approval, you have verbally provided all financial details, a credit report has been obtained and you have provided paper documentation to back your verbal statements, which the loan officer has verified the information is sufficient to continue with an approval.
The Financing Process
- Loan Application is completed and is submitted to your loan officer
- Loan Officer evaluates the credit report, information submitted and cross-references the data with programs and their guidelines to determine eligibility. The loan officer will provide you and me with the maximum purchase amount based on your current debt to income and the lenders requirements.
- Once the loan officer has established a loan program, he/she will request supporting documentation such as paycheck stubs, W2’s, Tax Returns, Bank Statements, Investment/Savings/Retirement Account statements, etc. Once that is furnished the loan officer can issue a pre-approval letter and a Good Faith Estimate. The Good Faith Estimate or GFE is an estimate of costs associated with the loan.
- Once you have selected a home, the property has been inspected, repairs have been negotiated with the seller, and then the loan officer will order the appraisal.
- After the appraisal is complete, all required documentation to obtain financing from the lender is submitted to underwriting. At this time, all verifications will be completed including verification of employment.
- Once the underwriter grants a final approval, a clear to close is given to the loan officer and the title company. The title company and lender work together to prepare all closing documents.
- A closing will be scheduled, any funds required for closing (ex: down-payment and/or closing costs) will need to be brought to closing in the form of a cashier’s check or sent via a wire transfer. Once closing is complete, the lender distributes funds to the title company, the seller is paid, and then the home is yours.