If you’ve ever bought a home before, you already know that getting a mortgage loan doesn’t happen overnight. But if you’re new to the process, you probably don’t know quite what to expect. So consider this article an “extra edition” to our Home Loan 101 educational series, as we walk you through the general steps that take you from “I love this house!” to “I can’t believe I OWN this house!”
Do I Need A Pre-Qualification Letter or a Pre-Approval Letter?
Whether buying a new or resale home, most real estate professionals or home builders will require you to obtain at minimum a Pre-Qualification Letter before signing a purchase agreement (or in some cases, before even taking you to view homes). This is not only common in the industry, but reasonable. After all, what’s the point in viewing homes unless you are reasonably certain you’ll be able to complete the purchase?
A Pre-Qualification is a simple step and does not require documentation or a credit check. By providing the lender with basic information, they will be able to give you a rough, unverified estimate of the loan size you may be qualified to receive. (Most lenders will give you a pre-qualification letter based on your verbal self-reporting of your income, assets, debts, and down payment amount.) One thing to remember: You don’t need to take out a loan from the same lender that gave you your pre-qualification letter.
For a Pre-Approval, lenders must verify everything you’ve told them (with identification documents such as your Social Security card, proof of income, assets, and employment, as well as records of any debts you hold.) Once you’re pre-approved, you’ll receive a conditional letter stating the exact amount of loan for which you’re approved.
• Note: If you have a simple situation – such as stable employment with no debt – this process can be as short as one to two weeks. But if you’re self-employed, own several other houses, have had a previous divorce or bankruptcy, have a pending court case or lawsuit against you, are in the U.S. on a temporary visa, or have other complicating factors, the loan officer may require additional documentation and this can possibly extend the process several weeks or months.
All things being equal, sellers often prefer to work with buyers who have Pre-Approval letters, rather than Pre-Qualification letters, particularly in a competitive market where homes get multiple bids. In some cases, it can mean the difference between getting the home you want – or sellers choosing another buyer because they have a firm Pre-Approval letter.
Comparison-Shop For Your Loan
It’s unlikely you would buy a car, piece of furniture, or appliance without shopping around. So it stands to reason that you definitely shouldn’t think about taking on a 30-year loan without doing some serious research.
If you know the approximate cost of the mortgage loan you’ll need – you can actually do your comparison shopping before you even select your new home. How? Because you’re shopping costs and rates at this point – not actually applying for a mortgage loan.
These are the 3 important points to keep in mind when comparison shopping:
1) Mortgage Broker vs. Mortgage Lender. As we explain further in our “Shop and Compare” video, and in even greater depth in this recent article – not all mortgage lenders are the same. So simply knowing the difference between a mortgage broker and a mortgage banker is critical because the two don’t have to operate according to the same regulations. (Spoiler Alert: Mortgage brokers are more strictly regulated and must disclose all costs to the borrower – mortgage bankers don’t have the same legal obligation.)
2) Shop At Least 2 Lenders. It’s important to meet with several lenders so that you can obtain Loan Estimates from each. Then you can compare not only the fees they will be charging you, but also the interest rates.
That’s because the interest rate can mean additional costs to you over the duration of your loan of several thousands of dollars. Why? It goes back to the Broker vs. Banker rules. Mortgage bankers are allowed to add fees to your loan through what are called “Service Release Premiums” – and they don’t even have to tell you about them. Mortgage brokers are not allowed to charge these fees – by law.
3) Ask About Fees. Another thing to look for on your Loan Estimate is fees – such as Loan Origination Charges, Document Fees, Underwriting Fees, and others (commonly known as ‘junk fees’). These can add up to $4-$8,000 or more – and they come right out of your pocket at closing. At Premier Mortgage, we’re proud to offer a true “No Fee” loan that charges $0 for these items.
But the good thing is, by reviewing the actual Loan Estimates you receive you will be able to do an apples-to-apples comparison of how much your loan will cost you with each lender. The bottom line is that by shopping around for the right mortgage loan, you can save money. A lot of it.
And remember – although each lender will look up your credit information, you don’t need to worry every inquiry will hurt your credit score. The Fair Isaac Corporation, or FICO, allows people to “rate-shop” for a mortgage without dinging their credit scores, as long as you do all of your shopping within a 14-day window. Abide by that timeline and the credit bureaus will regard that first credit pull as a “ding,” but ignore the subsequent ones.
Obtaining Final Loan Approval
Armed with your pre-approval letter, you make an offer on your dream home and then (hopefully!) it’s accepted by the seller. (Hooray!) Next, you’ll need the lender to conduct an appraisal. There may also be requirements in the purchase agreement to allow for home inspections, to make repairs, and other items specifically requested by the buyer and/or seller.
As these will vary from one transaction to another, the time required to complete these steps will vary, too. While home inspectors are normally available with short lead time, a licensed appraiser may have a backlog of up to two weeks or more. Appointments must be scheduled that accommodate all parties – so being flexible with your schedule can help. And it can also take several days to receive these reports back which, if approved, will then allow your loan to continue through escrow.
Then, you’ll need to arrange for insurance on your new home and work with the escrow company to provide any necessary legal documentation that is required. The escrow company must also conduct a title search, issue title insurance, obtain loan documents from your lender, and more.
In some (uncomplicated) cases, the entire process can be managed in under 30 days. In other more complex situations it can take several weeks or even months to conclude. But by providing the documents requested by your mortgage lender in a timely manner and meeting all of the buyer’s obligations as quickly as possible – you can effect a huge difference in the amount of time it takes to get final loan approval for your mortgage – and then plan your move into your new home!
More questions? That’s what we’re here for. Give us a call to discuss your situation, and we’ll be happy to help!
Premier Mortgage Lending, NMLS #393282, is located at 701 N. Green Valley Pkwy., Suite 125, Henderson, 89074. The full-service lender is a member of the Las Vegas and Boulder City Chamber of Commerce, Better Business Bureau and Southern Nevada Home Builders Association, as well as an affiliate member of the Greater Las Vegas Association of Realtors.