Pre-Qualiﬁcation v. Approval v. Underwriting Prequalifying for a loan is the lowest rung of the loan approval process and only represents a loan officer’s opinion of what you can afford. Approval means your loan application has been taken through a rigorous procedure. Your credit report is reviewed and many of your financial documents are provided to your loan officer. Approval saves you the time of looking at houses you can’t afford. Approved buyers that have a pre-approval letter at the time an offer is made signal to sellers that they’re serious and able purchasers. In this competitive home-buying market, some banks can offer an even higher level of loan approval, which is pre-underwriting. For well-qualified borrowers, our loan officers can run your entire file through processing and underwriting. This means that by the time you find a home, make an offer and have it accepted, your time to close may be a week or two shorter than someone with the standard loan approval. Having you file pre-underwritten could be the game changing advantage that gets your offer accepted.
A Quick Note about TRID TRID went into effect in late 2015 and replaced older borrower disclosures, while adding new consumer protection elements. TRID is also commonly known as the “Know Before You Owe” regulation and is intended to give buyers a straight-forward and clear understanding of the various costs and terms associated with their home loan. These new rules, however, also increase the time it takes to close on a home sale. Most banks and loan originators request at least 45 days for a closing (from the time your offer is accepted); some credit unions and out-of-state lenders have asked for 60+ days. However, some banks and loan originators can still close in 30 days or less. A faster closing is often preferred by sellers and could make a big difference in getting your offer accepted in a competitive offer environment.
Mortgage Broker vs. Bank Loan Officers A broker may have access to several lenders and may be able to offer you a wider selection of loan products and terms. Some mortgage brokers also have access to funds from an affiliated bank. Traditional loan officers work at banks and their primary source of funds is through their associated bank. Some banks offer loan products that are only available through their own loan officers.
What are the terms of the loan? All the terms of a loan matter, not just the interest rate. You’ll want to get a complete picture and break down of what a given offer means to you on a monthly basis, as well as how much money you’ll be spending over the life of the loan. The TRID rules that came into effect in late 2015 give borrowers the clearest understanding of their loan terms.
The Down Payment / Private Mortgage Insurance The largest upfront cost in purchasing a home is the down payment. Most traditional lenders expect borrowers to put at least 20% of a loan’s total amount down. Borrowers who are unable to do so are required to purchase Private Mortgage Insurance (PMI). This insurance protects the lender in case of default by the borrower. Some lenders now have other ways to work around this requirement, such as pre-paying the PMI or getting a second loan via a line-of-credit.
Let’s move on to the next section about Making an Offer.