Are you thinking about buying a home or currently in the process? If so, you’ve come to the right place. However, the real question is are you pre-approved? Buying a home is a big investment which means you’re going to need a loan – more specifically a mortgage loan. Being pre-approved means that a bank or lender has investigated your credit history and determined that you would be a suitable candidate for a mortgage. Yay!
If you are serious about buying a home, getting that pre-approval is one of the first steps before even looking at properties. Most sellers won’t even consider you as an option without it. So, we sat down with mortgage lender Bob Haft from New American Funding to talk about all things pre-approval! Let’s get started!
Q: How do you get pre-approved?
A: There are two ways that we can start the process. One is to do a 5-10 minute phone call. Or two, you can actually click on an online application and provide your information that way. Once I have your details, I can do my homework and assess your current situation.
Q: How long does that process typically take to get pre-approval?
A: It depends on the prospective buyer and how fast you can get me information like your income and assets. If you were to have everything in hand, I can get you pre-qualified in less than 30 minutes.
Q: What’s the difference between pre-qualification and pre-approval?
A: Once you’ve given me the information, I run it through an automated system and it says, “yes, you’re good to go.” And then you can kick out what they call a pre-qualification letter.
A pre-approval means that information and documentation have actually been looked at by an underwriter and they’ve given you a conditional approval. And that’s when you can actually say to any sellers that “hey, this person is actually pre-approved versus pre-qualified.”
Q: What information do you need to supply to get the process going?
A: If you’re a W2 employee, we’d be looking at a month’s worth of pay stubs, the last two years of W2’s, the last two years of federal tax returns, checking, savings, 401k statements, and where the money is coming from for any down payment.
If you’re self-employed, we’d be looking more at business returns,1099s, and so on. It’ll be different for different people depending on your work, but that’s the general list of information needed.
Q: When you issue the pre-approval letter, how long is it valid for?
A: Credit reports are good for 120 days at a time. So your actual approval is good for that length of time before I have to pull a new credit report. You’re still approved through this process, whether it’s 30, 60, 90 days down the line, as long as nothing has changed in your credit profile or income. If something changes, we’d have to adjust accordingly, but, normally if you just stay the course, you’re approved for the length of the time that you need.
Q: Does it hurt your credit report to go through the preapproval process?
A: It all depends. Everybody’s situation is a little bit different and always changing so we don’t know what your credit profile is right now. Whether you have 700 or 800 scores or do you have 600 scores? How many inquiries previously have been hit on your credit report? There is no standard in credit reporting, so it’s hard for anybody to tell you how many points that’s going to affect your credit report.
There are three credit reporting agencies out there and they all look at how you manage your debt differently and separately: Equifax, TransUnion, and Experian. They pull your mid-score as your FICO score and you’re going to find that all the creditors you’ve had over the life of your credit history, don’t all report to all three bureaus. Some report to one, some report to two, some report to all three. And that’s why they pull your mid-score as your FICO score.
But yes, as in terms of will inquiring have an effect on your credit report – it definitely could. I just can’t tell you, nobody can, on what that effect would be. If you gave me a little bit of information and said “Hey Bob, you’re my 10th poll, or hey, you’re my second poll on my credit report and it’s been within 30 days of me searching for our best mortgage possibility”, that sort of thing. I can give you more guidance on that.
Q: Does it cost us to apply for a mortgage?
A: There is no cost whatsoever. The only cost that you have is the time that you invest into the phone call or time with me.
Keep in mind that you are the boss! The borrower is the boss the whole way from start to finish. If you don’t think your loan officer has your best interest in mind at any time, you could walk away and there is no cost at all. I just want to make sure you have the information you need to make good and informed decisions on any financing decisions you and your family might have to make.
Q: Should you shop around for different lenders before picking one?
A: All loan officers work in different ways, so it’s not a bad idea to make sure you have that right representation on the financing side of things when you’re making one of the most important decisions of your life. I do encourage people to check out other venues, but I would limit it to two, maybe three lenders. Because like I said, the inquiries will have an effect on your credit score, but at the same time, you want to make sure you have that right person in front of you to give you their guidance, set the right expectations for you, and to educate you on the terms you’re going to come across when buying a home.
From the real estate side of things, it’s important that you feel comfortable with your lender and that you understand if you qualify for a home, knowing your down payment, closing costs, etc. And know that there are programs out there where you can put 3.5% down or sometimes less or 20% or more if you want.
Q: Do different loan officers offer different funding options?
A: The other portion of shopping around is getting more than one opinion. You’re going to find that not all lenders have all the financing options available that might be best for you. If they don’t have it, they’re not going to present it to you, but there might be something better out there for you. That is another good reason to make sure you have the right person in front of you that has the right product for you, depending on what your financial goals are in the home. Think about it, is it a starter home? Is it your dream home? Is it the end home?
Q: Am I ready for this big investment?
A: It’s life-changing and it’s up to you whether or not you make it a lifestyle change. Together we gauge what you’d expect for a house payment and then I can give you guidance on what you should be looking for. You might qualify for more house, but if you go above what you budgeted for, it becomes a lifestyle change. You’d have to give something up to make that work. It is a big investment, but that doesn’t mean it’s not doable! People do it every day! And even if you’re not ready now, a good loan officer should prepare you and put you on a path to achieve your financial goals.
It’s time to stop throwing your money away on rent and start investing in you and your family’s future! Schedule a meeting with us now and we’ll get you going in the right direction!
Did you like Bob? We do too! Reach out to him directly if you have more questions or are ready to get the pre-approval process started!