THE BEST FIRST STEP IN FINDING A NEW HOME: GET PRE-APPROVED FOR A LOAN!

A PRE-APPROVAL - WHAT IS IT AND WHY GET IT FIRST??

My best first suggestion to clients who are getting ready to start their home search is to get pre-approved.  So what does the informal term "pre-approved" mean?

Realtors use this term all the time, usually asking a potential client:  "Are you pre-approved yet?"

What we really are asking is:  "Have you spoken - at length - with a lender and has that lender, after pulling your credit report and verifying some information, issued you a written document that says you are qualified for a home loan of a certain type and for a certain amount?"

If you have filled out an online form at a lender's site, and then the site spits back a "pre-qualification" notice suggesting that you would qualify for a loan, this is NOT a pre-approval.  These are fine to satisfy your own personal curiosity as to what you might be qualified to borrow, but they are essentially meaningless in terms of demonstrating your ability to qualify for a mortgage.

You want a specific pre-approval from a loan officer who has reviewed your criteria.

It is important to get this FIRST for several reasons:

• It specifically defines your comfort zone in terms of price.
• It gives you confidence that you will qualify for a loan.
• It is better to have this BEFORE you find a home that you really like rather than having to scramble afterwards to get it.
• It is submitted with any offer to demonstrate to the seller that you can afford whatever it is that you are offering.
• It also reassures your agent, who is investing time and travel expense to show you homes, that you are not "just looking" and that you have a sincere intention to purchase a home.

A pre-approval should not cost you anything in terms of dollars.  It will typically be considered a "hard" inquiry (made by a lender) as opposed to a "soft" inquiry (such as when you check your own credit score.)  In  that sense, your credit score will be affected slightly - suggestions are that it might drop your score by five points.  For most people, this will not become an issue.  However, discuss this with the potential lender BEFORE they do the credit check to be fully informed.

Once you have the pre-approval, it is usually good for 45-90 days.  If it expires, and not much has changed in terms of your job, income, debt and so forth, renewing the pre-approval is usually an easy process.

Making a request for a pre-approval is easy:  You call a lender and spend a few minutes providing information so that the loan officer can identify you and start the verification process.  Many loan officers are able to issue pre-approvals the same day if you call in the morning - some do it in as little as an hour.

You can contact any bank, lender or credit union that offers home loans to see what programs might be available and what rates are being offered.  I usually offer several recommendations to my clients if they need some names.  These are lenders who I trust and who have demonstrated the ability to close a loan in a predictable and dependable way.

To summarize, applying for a pre-approval is usually an easy and quick process, and almost always the best first step that you can take.