Rushing into things generally leads to bad results, especially when it comes to home loans. As we already mentioned in other posts, it’s always better to be cautious and come prepared with good savings before starting the process( if you didn’t read it- make sure you check out why you should get a loan). But just having a good down payment doesn’t make you ready for a home loan, as many buyers make the mistake of not knowing the difference between a pre-qualified and a pre-approval letter. Many believe that once the lender gives the pre-qualified letter, they already got the pre-approval letter. Big mistake.
Here’s where the process gets started to get a mortgage. There are three key words we have to keep in mind for this initial phase: assets, debts and income. This is what a lender/bank is going to take a look at before pre-qualifying you. This is a simple step, as your financial situation is not going to be analysed in depth at all, it’ll be more like you’ll get advice on what type of mortgage you should apply for based on your current economic picture. This usually involves no costs.
As you can imagine, being pre-approved involves a lot more in depth investigation and it would be a lot more meaningful in the process of getting a mortgage.
Next stage is going to be useful for any potential home buyers, as we’ll know by the end of it how much we can afford and what properties are in our radar within the market.
We would need to submit: an official mortgage application and the documentation needed for an extensive analysis on our financial situation and credit rating.
This is what a mortgage application would look like, they are valid generally from 60 to 90 days.
- Type of mortgage and terms of loan – The specific loan product for which you’re applying; the loan amount; terms, such as length of time to repay the loan (amortization), and the interest rate.
- Property information and why are you getting a loan? – The address; legal description of the property, the intended type of residency (primary, secondary or investment).
- Borrower information – Your identifying information
- Employment information – The name and contact information of current and previous employers, dates of employment, title and monthly income.
- Monthly income and combined housing expense information – A listing of your base monthly income, as well as overtime, bonuses, commissions, net rental income (if applicable), dividends/interest, and other types of monthly income such as child support or alimony. Also, you’ll need an accounting of your monthly combined housing expenses, including rent or mortgage payments, homeowners and mortgage insurance, property taxes, and homeowner’s association dues.
- Assets and liabilities – A list of all bank and credit union checking and savings accounts with current balance amounts, as well as life insurance, stocks, bonds, retirement savings, and mutual funds accounts and corresponding values. You’ll also need to list all liabilities, which include revolving charge accounts, alimony, child support, auto loans, student loans and any other outstanding debts.
- Details of transaction – An overview of the key transaction details, including purchase price, loan amount, value of improvements/repairs, estimated closing costs, buyer-paid discounts, and mortgage insurance (if applicable). (Note: The lender will fill in much of this information.)
- Declarations – An inventory of any judgments, liens, past bankruptcies or foreclosures, pending lawsuits or delinquent debts. You’ll also be asked to state whether you’re a U.S. citizen or permanent resident, and whether you intend to use the home as your primary residence.
What do we get from these? A better overview of how much we would need for getting approved for a mortgage, as well as the interest rate that would be applied.
Once you get the pre-approval letter, there will be a commitment document that gives you conditional access to a future loan, which puts you ahead of other potential home buyers, as the sellers will be aware of that you’re closer to get a mortgage.
So what’d be next and last is getting a loan commitment, which would involve a second check of your economic situation to make sure that it didn’t change notoriously from the first time.
What did we learn in this post?
A pre-qualified and a pre-approval letter are two very different concepts, don’t assume you’re getting a loan till you get pre-approved!
Good luck, and I hope you enjoy your new home for many years to come.
So that’s all for today, hope you found this article useful so far and don’t hesitate in reaching me out if you have any questions or need a consultation.
Stay hungry and stay positive!
Make it a great day,
Sean La Rue