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The home buying process can be complex. But borrowers can save a great deal of time and frustration by speaking with a mortgage broker or lender before they begin shopping for a home.
Seeing a mortgage professional in advance will help borrowers determine the price range they can begin to look for based upon the loan size that fits their budget. Home buyers can also find out if there are any problems that would prevent them getting approved before making an offer on a home. Most Realtors today will not take a home buyer to see homes unless they have at least been pre-qualified, and most Realtors will not let home buyers make an offer unless they have been pre-approved.
Many mortgage lenders and brokers offer free “pre-qualification” programs, which seek to give borrowers an idea of the size loan for which they can qualify. However, these programs may be misleading because they review only the homebuyer’s income, assets and debts and are not reviewed by actual mortgage underwriters who approve the loan. Because these type of “pre-qualification” programs provide a borrower with a monthly payment based on limited information, the buyer, real estate agent and seller may have the mistaken impression that the mortgage is formally approved. In some cases, however, after a sales contract has been written and accepted, or after weeks of processing of the loan, the borrower learns that he or she does not actually qualify for the loan.
Borrowers can avoid this type of frustration by obtaining what is known as a “pre-approval.” A mortgage pre-approval is when a borrower goes through the process of submitting an application and documents to get an actual loan approval so he or she can go buy a house and know they are approved. The most important difference between a getting pre-qualified and getting pre-approved is that your credit report is always run by the mortgage lender or broker when you request a pre-approval, but a credit report is usually not run when you request a pre-qualification. (Note: when you speak with a mortgage loan officer, be very careful: make it clear to them that you do not want your credit report run unless you give them your permission).
Many lenders will provide a borrower with a letter good for up to ninety days after reviewing the borrower’s credit and income with the underwriting department. This letter can improve the buyer’s negotiating position with the seller. The monthly payment stated in the letter generally includes either the maximum loan amount, the maximum purchase price or both, giving all parties involved in the transaction a clear picture of the buyer’s financial position.
Mortgage pre-approvals can take anywhere from a day to a week or two depending on your specific qualifications. Basically, the better your financial and credit situation, the faster you will get your pre-approval. Once the loan officer has delivered the pre-approval, it enables home buyers to proceed with their home shopping with the confidence that he or she has a guaranteed loan. The approval letter also indicates to the seller and listing agent that the borrower has obtained a legitimate early approval. So, when shopping for a mortgage, homebuyers should be sure to ask whether the pre-qualification program offered by the lender or broker is actually underwritten. Obtaining an actual full mortgage pre-approval can help simplify the home buying process.
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