Mortgage Pre-Approval

First things first. As a buyer, the most important process to accomplish before you see any property, go on the computer to search for properties, go inside a home, see a Realtor , answer an ad, speak to a friend, anything... is GET PRE-APPROVED! You need a bona fide lending institution to make sure you have the proper down payment, credit history, debt/income ratio and income level in order to purchase a home. So, how do you get a “preapproval?” Go to a bank or a mortgage banker or broker. You can find these people almost anywhere, from the phone book, a bank on any street, Internet, Realtor referral, attorney referral, etc. Speak to a minimum of two to three representatives from different lending institutions, as each lending institution has different lending programs at different interest rates at different times. The mortgage banker/broker will ask you a lot of questions.

1. The first one you will have to answer is what is your name and social security number. Without a social security number, you will need to have a “Federal ID” number, but it is more difficult and more expensive to get a mortgage. If you don’t have a social security number, is there anyone who has a social security number and good credit that would agree to purchase a property with you? If not, then you have to go get a social security number.

2. With your social security number, the mortgage representative will run a “credit report” and generate a “credit score.” This “score” will determine how much of a risk the bank may have to take in giving you a loan. If you have had a decent amount of credit and paid back your loans in a timely fashion, then you will have a good score and get a loan at a higher dollar amount, at the lowest interest rate. If you have some late payments or any other negative items on your credit history, then you may not be able to borrow as much money and/or will have to pay a higher interest rate.

3. Once your credit score is finalized, your mortgage representative will ask you questions as to your income (as proven as stated on tax returns), debts, other mortgages on other properties, financial obligations (child support, alimony, etc.) and many others. If you have a low “stated income” or no tax return, there are other types of mortgages available, and yes, you can still get a mortgage. You’ll need to discuss this with the mortgage representative for details. Once all this information is compiled, you will then be told how much you can spend on a property, depending on how much cash you want to use of your own, versus how much you want to finance.

4. At this point, the mortgage representative will give you a written “Mortgage Pre-Approval” that states the mortgage representative has verified credit and taken an income and debt history. It will also establish how much you may spend on a property, how much you will put down as cash, and how much you will mortgage. This is the document you will give to your Realtor so he/she will know what kind of properties to show you. Without this certificate, it is impossible for any Realtor to really know what you can spend. In addition, the “Pre-approval” will also be required by the seller’s Realtor in order to present an offer. Please note, this “Pre-approval” does not show any confidential information, such as your income, debt, credit score, or any other personal information. It only shows how much you can afford to purchase for a property.

5. After you receive the “Pre-approval,” the mortgage representative may ask you to “lock-in” an interest rate at that time. DO NOT LOCK-IN ON ANY RATE UNTIL YOU ARE IN A CONTRACT-OF-SALE AND KNOW THE CLOSING DATE OF THE TRANSACTION! Lock-in rates are only valid for a certain amount of time, and they do expire! So, if you lock-in too soon, and you can’t close on your property before the lock-in rate expires, you won’t necessarily be able to keep that rate! Then it may cost you even more money to lock-in on a new rate later on.

6. You should also keep in mind that there are additional expenses/costs in purchasing a home. These costs are called “Closing Costs.” These expenses include, but are not limited to, lock-in fees, prepaid property taxes, mortgage fees, recording fees, appraisal fees, attorney fees, title insurance, and many others. You will need cash in the amount of approximately 4% of the price of the home to cover these expenses. But this estimate may vary depending on “points” paid to the lender, property taxes, etc. Speak to your mortgage representative for a complete list of projected expenses.