The advantages of preapproval

The housing market is warming up in many areas, with multiple offers becoming more commonplace.  Buyers who want an advantage in the bidding process will need more than a mortgage prequalification – they will need a preapproval.

Making sense of the story

• The differences between mortgage prequalification and preapproval are significant. Prequalifying for a mortgage is based solely on what a borrower discloses to the loan officer or broker about his/her earnings, credit score, and total assets, including what is available for a down payment. By contrast, a preapproval requires a borrower to provide documentation of his/her income and assets.
• The lender typically pulls the borrower’s credit report and score, while the borrower gathers together almost everything else needed for the actual mortgage underwriting: W-2 wage statements; 1099s; recent pay stubs; bank statements; and statements from Individual Retirement Accounts and 401(k)s; and other assets that could show the borrower has the resources to buy and maintain a home.
• With so many homes receiving multiple offers, a preapproval is more important in today’s marketplace. 
• The preapproval letter should include the amount a borrower is qualified to borrow, as well as the loan officer’s contact information.  Some letters may have an estimated monthly payment, but details about the loan time and interest rate are not included.
• Timing also is important.  Buyers should aim for obtaining a preapproval letter from a lender within 30 to 60 days of the expected purchase date.  That is because some letters expire in 90 days.

Having trouble getting approved for a mortgage ?

Some borrowers think that because their mortgage application is turned down the first time, they won’t ever be approved.  In reality, some borrowers succeed on the second or third attempt, usually with a different mortgage professional, and often several months later, after they have saved more money for a larger down payment or improved their credit score.

Making sense of the story

• Before reapplying for a mortgage, borrowers are advised to look at the reasons they were initially rejected.
• The Equal Credit Opportunities Act requires lenders to give loan applicants specific reasons in writing within 30 days of their decision.  If it’s based on a problem in the borrower’s credit report, the lender must tell the borrower the name and address of the credit agency that provided the information.
• Talking to the loan officer who denied the application to see how close the borrower was to being approved also can be helpful.  Sometimes the gap is small and could be bridged with a larger down payment or another home appraisal, for example.
• It also may be worthwhile to shop around for other lenders. 
• However, first-time buyers may need to scale back their aspirations.  One reason people get turned down for a mortgage is because they try to buy more property than they can afford based on current incomes.
• Applicants also should look at ways to strengthen their financial picture.  If a borrower’s credit is poor, paying down credit-card balances can help to increase a FICO score. 

clear skies,
Doug Reynolds
 
www.BHGshortsales.com

Thinking about buying a home in the Sacramento Area?

• Often times, first-time home buyers are so excited at the prospect of becoming homeowners that they start their home search immediately, without knowing how much house they can afford.  To avoid wasting time looking at houses out of their price range, buyers are advised to begin the home-buying process by meeting with lenders and getting pre-approved for a mortgage loan.

•  Unlike getting prequalified, which is just a ballpark figure and doesn’t require the lender to check the borrower’s credit history, a preapproval provides the borrower with a Good Faith Estimate spelling out the terms of the loan, the interest rate, the type of loan, and the closing costs.

Shoot me an email or text and I can send you a list of excellent loan officers.

clear skies,
Doug Reynolds
 
www.BHGshortsales.com