Guiding your path to mortgage pre-approval

Are you looking to buy a house sometime soon? NeighborWorks can help “pre-flight” you for the process – for free.

In last month’s column, we talked about becoming pre-qualified to buy a house. Today, we are moving to the next step – pre-approval. 

To reiterate, pre-qualification is a term used to describe the process of an applicant’s credit review.  Once all an applicant’s pertinent information – income, credit, employment history and debts – have been verified, the lender will determine if the applicant meets all the requirements for the specific loan program they want to use. 

Each loan program may have specific requirements that must be met, but your lender will be able to explain the different programs available and help you decide which is the best fit

for your situation.  A lender will consider things like whether you are a first-time homebuyer, if you qualify for veteran’s status, or rural status, or if you might qualify for down payment assistance.

Once an applicant is “pre-qualified” for a particular program, it means the application can move forward to underwriting with the goal of receiving a “pre-approval.”   

A “pre-approval” is the lender’s agreement to lend money to the borrower if all the lender’s conditions are met. This includes conditions pertaining to the property being purchased. Once pre-approved, the applicant is not only qualified for the loan program they wish to use, but they also have the commitment from the lender that they will be able to borrow the money for a house according to the loan limits and conditions set by the lender. 

Some of these conditions could be: the required amount of a borrower’s verified down payment and closing cost cash available, a Purchase and Sale Agreement, an appraisal showing the value of the property that supports the loan amount requested, and proof of clear title and transferability for the property. (This is where the title company comes in.)  There could be additional items requested by the lender if defects in the title need to be cleared or specific repairs to the property need to be made before closing.

Some realtors require their clients provide a letter of pre-approval before they will even show a property. This is because the seller wants to know that the people looking at their home are ready and able to make a purchase decision. Everyone wants the sales process to go as smoothly as possible.    

How long does it take to buy a house?

What is a typical timeline of buying a house?  Well, as you can imagine, it varies and has a lot to do with how prepared the loan applicant is when they see a lender. 

Most lenders are happy to discuss basic loan qualification requirements with loan clients. Then the applicant will be given a mortgage loan application and a checklist of items needed to include with the application submittal. These may include copies of pay stubs, two years (or more) of complete tax returns, bank statements and certain signed disclosures provided by the lender among other things. 

The applicant gathers all of this together along with the completed loan application and returns it to the lender who then starts the process of pre-qualification.

One of the free services NeighborWorks provides is a Home Buyer Readiness review. Just make an appointment with Evelyn Santiago, our housing counselor, and she will help you prepare the needed documentation before you talk to the lender.

In addition, Evelyn will review anything that you might need to address before you apply for credit such as down payment and closing cost requirements and credit issue resolution and income sources. She can also give you a general idea of possible loan amounts and the current interest rates. This helps you anticipate any roadblocks to your loan application process.

There is also a low-cost, online home buyer education class that we recommend to all homebuyers (especially first-time homebuyers) that provides excellent information about the home-buying process, the loan closing and home ownership beyond the loan closing.

How much does it cost to own a home?

One thing to keep in mind when buying a house – especially if you are a first-time home buyer – is that running a house can be expensive.

Two of the “extra” costs are so key, that most lenders include them with the mortgage payment. Called “mortgage reserves” or “impounds,” this money is set aside to pay annual property tax and home owners insurance costs.  In fact, during the pre-qualification and pre-approval process your lender is not only determining the repayment of principal and interest, but also estimating the cost of these two things, which will be added onto your monthly loan payment.  This total payment is considered in the qualification process.  They will use the current property tax assessment and the quote given to you by your insurance agent to determine this impound amount. 

In addition, if you have been renting for a while, you might have an idea what it costs for heat and power to your apartment.  But, other utilities such as garbage, water and sewer and maybe even internet, may be included in your rent.  So, especially if they were included in your rent, it’s important to find out what those bills will be before buying a house.

The eHome online Home Buyer course covers these questions and is highly recommended for first time home buyers. You’ll find a link to this course on our website at www.nwghc.org

In the meantime, you can do a little research by calling the PUD to see what the average rate for a single-family home in the area you want to purchase. With a few quick phone calls or a little internet research, you can also easily find out what garbage and cable/internet service are monthly, as well as if there are one-time hook up or transfer fees. 

As you can see, the process of buying a home has a lot of moving parts and requires many people working together to complete the process!

As we’ve said before, each borrower is different and comes with their own set of needs and requirements to be considered. You will have a team of your realtor, lender, inspector, appraiser, title agent, insurance agent and possibly others all working in tandem to get you into the home you want for your family.  But you must play your part too,  and NeighborWorks is here to help you move forward well prepared and educated to enter this process.

To talk to Evelyn, call between 8 a.m. and 4 p.m. Monday through Thursday at (360) 533-7828 or e-mail her at ESantiago@aberdeen-nhs.com to make an appointment.

Eric Bjella is the executive director of NeighborWorks of Grays Harbor; a nonprofit organization committed to creating safe and affordable housing opportunities for all residents of Grays Harbor County. For questions about home repair, housing counseling, homebuyer education and financing, call 360-533-7828, listen to the extension picks that will best help you and leave a callback name and number