If you have begun the process of searching for a home in Massachusetts you have probably learned that the first step in this journey is obtaining a pre-approval from a bank. A realtor may have suggested that you get "pre-approved" and this step is vital in today's home buying market.
What, exactly, is a pre-approval?
You may have started the process by going to on-line sites like Lending Tree to put bids out to receive competitive programs that fit your needs or Bankrate.com which has all of the current mortgage rates.
The actual pre-approval is a letter from a lender stating that you are pre-approved to purchase a home for a certain price and with a particular loan amount.
It begins with you contacting a lender and laying out your particular financial situation as well as any special circumstances you may have. The lender will collect data from you such as tax returns and other relevant information to support the income you are claiming. They will also want to see W-2 forms for the past two years, pay stubs for the three months and bank and brokerage statements from the last three months.
Additionally, you will be asked to provide information about your current living situation (buying or renting), job history, social security number and will run a credit check to get your FICO score (also known as your credit score).
By checking the basics of your employment, financial statements and credit score, the bank can develop a picture of who you are as a credit member of society. Do you have late payments or do you consistently pay on time? Have you been steadily employed for at least two or more years? Do you have a pattern of savings? Are you relatively debt-free or have a high debt ratio?
At this stage the bank will use this information to obtain approval for a specific amount and will provide you with information about the monthly payments on the loan as well as projected closing costs.
The mortgage lender will then submit the paperwork through an "Automated Underwriting" process. With this process, an answer to your application is typically received within minutes of submission. Once the paperwork is approved, the lender will issue a pre-approval letter that outlines the terms of the mortgage.
What is so important about a Pre-approval?
In terms of your home search, the pre-approval sets the tone and price range which will allow you to intelligently begin the home search process. It also allows your buyer broker to be more effective in helping you.
As a buyer broker, I help my clients to connect with bankers to find the best rates and programs available. I, then, step aside and let the lender and my client do their work in private. A person's personal finances are often closely guarded and I respect that. My only need is the final pre-approval letter to ensure that my client is qualified to purchase the properties we are viewing together.
The pre-approval letter is a key component to the home buying process. Although it is not a final loan commitment, a pre-approval can provide you with an advantage when bidding on a home. It demonstrates your financial strength and proves your ability to go through with a purchase. In a competitive situation it makes a great difference in your purchasing power.
Once armed with a pre-approval from a qualified lender, you are ready to begin the search for your new home.
Copyright 2009 - Claudette Millette, President, TheBuyersCounsel - 800-392-1446, E-mail
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