The Importance of Pre-Approval

Pre-Approval is a sign of readiness and provides buying leverage if you find a home you want and there are other buyers in line. “Pre-Qualification” is essentially an opinion letter from a bank, while “Pre-Approved” means the loan is set to go. Knowing the approved loan amount upfront will amplify your buying power and simplify your home search.

Determine Your Price Range

Pre-approval will determine your purchasing power. Your lender can share the types of financing available and what you qualify for with each type (i.e. fixed or adjustable-rate loans).

Understand Your Monthly Payments

Before landing on a price range, it is important for you to ensure your comfort level with your monthly payment which includes Principal, Taxes, Interest, Insurance, and possibly Mortgage Insurance, if applicable.

Pre-Approval Makes You A “Cash Competitive” Buyer

When considering offers, sellers have a vested interest in how their potential buyer intends to purchase their home. Pre-approval positions you as serious, willing and able to complete the deal. If there are multiple offers, a buyer must put themselves in the best possible light in order to have their offer shine through. Pre-Approval is the proactive way to make this happen.

Things to Avoid During The Loan Process

We recommend you make every effort to avoid these actions at the risk of slowing down the process of financing your new home.

BEST NOT TO:

Buy or lease a new automobile.

This is a good time to be mindful of anything that may affect your debt-to-income ratio. New payments, particularly large ones, may detrimentally impact your ability to obtain a loan.

Run a credit report on yourself (or your spouse, if applicable).

All inquiries must be explained in writing so it is advisable to avoid doing at this time.

Consolidate your bills prior to meeting with your lender.

Speak to your lender first about any financial maneuvering to avoid delaying your loan approval.

Make major purchases, such as appliances or furniture.

Purchasing anything at this time can potentially increase your debt and reduce your chance for an optimal loan.

Move your financial assets around.

During this process, everything on your financial dashboard will be examined carefully. You must disclose and document everything you do so it is highly recommended that you keep your accounts free and clear of complications.

Pack or ship important loan documents.

We recommend that you keep a file on hand with important documents like W-2 forms, Tax Returns, Divorce Decrees, and any other supporting information. It is wise to be prepared with these items right up to the close of escrow.

Change employment.

The probationary period that often comes with new employment can jeopardize your ability to qualify for a loan.

Loan Review Elements Explained

Credit

Your credit score is the mathematical calculation of your overall credit rating. This is the moment when a good payment history comes front and center, and any derogatory credit notations need to be explained with a very good reason. Any outstanding collection accounts, judgments or liens will be paid through escrow.

Job Stability

Consistency is a beautiful thing when applying for a loan. The same job with the same company for a long time is ideal but of course, life throws curveballs. Change for the sake of advancement is acceptable. Schooling in preparation for your vocation is meritable on your employment path.

Down Payment, Closing Costs + Cash Reserves

You will be required to provide a minimum of 3% towards the down payment from your own funding. For funds to be considered, they MUST be verified as having been yours for 3 months. The remainder of the down payment, closing costs and 2-3 months of reserves may be gifted by a relative who provides a letter and bank statement showing ability and proof of funds.

Income and Ratios

Your gross monthly income, before taxes, is computed. Bonuses, over-time, part-time or self-employment income are averaged over the last two years.

Principal, Interest, Taxes, and Insurance ( = PITI) on the loan are divided by the gross monthly income to get the “Top” ratio.

Ideally, ratios are below 33 for the top ratio, and below 38 for the bottom ratio for an 80% loan. These can be lower for 90%, 95% or 97% LTV loans.

If other components weigh strongly, higher ratios may be permitted and are often available in our local marketplace.

Property

The subject property is considered security for the loan. To ensure sufficient collateral, the lender will require proof in the form of an appraisal from a Certified Fee Appraiser. An underwriter reviews the appraisal for verification of marketability, condition, and value. The lender also requires a Title Report and Insurance on the property to protect both you and them.