Apply Before You Buy
APPLY BEFORE YOU BUY...WHY?
Before you start your home hunting it is very important that you know how much of a loan you would be approved for.....in addition.....your agent is going to need an LSR (loan status report) to present an offer to the listing agent. You have to have this to submit an offer.It is very important to understand the difference between the two. PreApproval and PreQualification
have big differences.....they sound very similar...but there is a big difference! Prequalification is a quick and simple comparison of income to debt....usually no credit report is run. Preapproval is a full application is taken and a credit report must be run. This also involves collecting of income and asset and debt documentation. T he loan process is fairly straightforward, as long as you understand a few key points:
- Pre-qualification is the first step you can take -- but it's not mandatory. If you want a ballpark idea of how much a bank will loan you so that you can shop within your price range, pre-qualification is a quick and easy way to find out. Most banks and credit unions will do this over the phone, and your credit history will usually not be checked. A loan officer asks you about your income, assets, debts and projected down payment and then calculates what kind of loan you'd likely qualify for. The process takes just a few minutes.
- Pre-approval is more involved and usually requires an appointment. In this step, the lending institution gathers all the information it requires to offer you a loan, and your credit report will be checked; you may be charged a fee for this at the time of the appointment. You'll need to bring some items with you to document your identity and your assets:
- A copy of your most recent bank statements (this includes your daily checking account as well as any money market, savings or other accounts)
- Your most recent W-2 (or entire tax return if you're self-employed)
- Proof of IRAs or retirement accounts and their current balances
- Ditto for any stocks or mutual funds you own outside of retirement accounts
- Your driver's license
- The most recent month's paystub(s) from your job
- An application fee (this depends on the lender)
- The result of the pre-approval process is the good faith estimate. At the end of the pre-approval process, if the bank looks you over and likes what it sees, you'll receive what's called a good faith estimate (GFE), which is a brief document spelling out the likely terms of the loan, including the interest rate, loan type (fixed-rate, adjustable and so on) and closing costs.
- Pre-approval does not mean the bank guarantees you the loan. It just means that you're approved to get loan -- unless something goes wrong. Commitment to the loan generally comes after the bank has had the house in question appraised to make sure the price you're paying isn't higher than the home's market value. This protects them in case you default on the loan, which would leave them in the red even if they evicted you and sold the property. Banks also check to make sure the home has a clear title and that you've insured it for replacement value.
- The big advantage of the Pre-Approval is that you can close much quicker because your paper work has been submitted and approved by the underwriter. This can be used in negotiations with a seller because you can close quicker...this can also be the difference between your contract being taken over another person offer...because you are able to close faster!
