10 Step Home Buying Process
Step 3: The Pre Approval
Few people can buy a home for cash. According to the National Association of REALTORS® (NAR), nearly nine out of 10 buyers finance 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.
We suggest that you start the mortgage process well before bidding on a home. 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 most importantly...know how much you can afford.
We also recommend pre approvals for another reason: Purchase Contracts or Purchase Offers often require the Buyers Agent to list the type and terms of the financing the buyers is applying for. Buyers also must obtain 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. Therefore we suggest you obtain only one pre-approval prior to starting your process and update it once you have found a home you would like to make and offer on.
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. It is important that your Buyers Agent request that the Pre Approval only show the amount of the buyers offer and not the total amount the buyer has been approved for.
How do you get pre-approval?
Real estate financing is available from numerous sources. From your local bank to credit unions and special government programs such as VA, USDA and many others. Your agent may suggest one or more lenders with a history of offering competitive programs and delivering promised rates and terms depending on your specific situation however it should be noted that though agents are not in a position to be offering financial advice, they may suggest you speak to your accountant prior to you deciding on which loan product fits your situation.
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 qualify for state-backed mortgage programs with little 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.
Step 1: Your Financial House
Step 2: The Buyers Agent
Step 3: The Pre-Approval
Step 4: Look at Homes
Step 5: Choose a Home
Step 6: Get Financing
Step 7: Making an Offer
Step 8: Get Insurance
Step 9: The Closing
Step 10: After the Closing
10 Safety Tips for todays Sellers
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