Shopping for a home may be exciting and fun, but serious homebuyers need to start the process in a lender's office, not at an open house. Most sellers expect buyers to have a pre-approval letter and will be more willing to negotiate with those who prove that they can obtain financing. Pre-approval gives you an idea of how much money you can borrow, guiding your search for a home. It also shows sellers that you’re creditworthy and serious about buying, making your offers more appealing.
Want to feel good about making a strong offer on your dream home? Get an initial approval for your loan almost instantly when you work with independent mortgage professionals like us. Our cutting-edge process lets us do what big banks and retail lenders can’t and give you an initial loan approval in as little as 15 minutes — even on the weekends!
You’ll also enjoy greater transparency so you can gather any paperwork you need ahead of time and make sure your loan goes through as smoothly as possible.
We recommend contacting us first to learn about your finance options and see if you can get pre-approved so you know your budget before beginning your home search.
Both pre-qualification and pre-approval involve a review of an applicant's credit report. The difference is the degree of credit review. Pre-qualification involves a quick review of one's credit and only provides a potential borrower with a general idea of how much mortgage they could qualify for and under what terms. Pre-approval involves a full credit review, while only offered for a limited time window, provides the potential borrower with a solid offer of credit from a lender with which they can use to make good faith offers on homes for sale.
A preapproval is helpful when you’re shopping for a home, but you’ll need to get a full approval once you find your home, and simply getting a preapproval before you start looking at properties doesn't guarantee you’ll get approved.
Lenders verify certain borrower information before providing a pre-approved offer. These include verification of employment, income, assets and credit score. A full credit report and credit score are pulled at the time of application vs. a limited (soft pull) credit report that is often used with pre-qualification offers.
Getting pre-approved for a mortgage gives a person bargaining power since they have mortgage financing already lined up and can therefore make an offer to the seller of a home in which they are interested. Otherwise the prospective buyer would have to go out and apply for a mortgage before making an offer and potentially lose the opportunity to bid on a home.
A gift must come from a family member (aunt, uncle, cousin, parent, sister, brother, fiancé, in-laws), sometimes employer. There are a few required documents that you need to complete a gift, so be sure to consult your loan officer on what items you and your gift donor may be required to supply.
Your interest rate is the direct charge for borrowing money. The APR, however, reflects the cost of your mortgage as a yearly rate and includes the interest rate, origination charge, discount points and other costs such as lender fees, processing costs, documentation fees, prepaid mortgage interest, and upfront and monthly mortgage insurance premium. When comparing loans across different lenders, it is best to use quoted APRs for the same type and term of loan.
For most homeowners, the monthly mortgage payments include three separate parts:
Principal: Repayment on the amount borrowed
Interest: Payment to the lender for the amount borrowed
Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company.
A mortgage rate lock is a promise to you from the lender to hold a specific combination of an interest rate and points for an agreed upon time (typically 10, 15, 30, 45 or 60 days) until you can close on your home. Locking in a rate protects you from unforeseen interest rate increases that can occur in the days or weeks leading up to closing, but conversely, if the rates fall, you may not be able to take advantage of the lower rates.Rate locks are dependent on the type of loan program, current interest rates, points, and the length of the lock. To hold a rate for longer periods of time, you usually have to agree to pay higher points or interest rates.
You should avoid opening new credit once you have applied for your mortgage, such as buying new car or taking out a new credit card. This can cause your approval to change since it will add to the amount of monthly debt payments that you are responsible for.
DTI: Debt-to-income ratio is the percentage calculated by dividing the borrower's monthly debts by their gross monthly income (income before taxes are deducted). For example, for a gross income of $5000 per month and debt payments consisting of mortgage or rent, a car payment, and credit cards of $2000 per month, divide the monthly debt (the $2000) by the gross monthly income (the $5000) to get a DTI of 40%.
This is also called a back-end DTI. It's important to note that debts such as utilities, car insurance, and cable bills are not considered a factor when calculating DTI.
Front-End DTI: The front-end DTI is calculated the same way as the back-end DTI, however the front-end DTI only calculates debt related to the anticipated mortgage payment, which generally includes principal, interest, taxes, and insurance (PITI).Lenders will use both front- and back-end DTIs to determine what a borrower can qualify for and how much of a mortgage the lender can provide based on the resulting percentage.The DTI calculates a borrower's ability to pay their mortgage. The higher the DTI, the higher the risk for the lender. As a result, higher DTIs traditionally carry higher interest rates whereas lower DTIs carry less risk and traditionally lower interest rates.
LTV: Loan-to-value ratio is calculated by dividing the current value of the home by the amount of the mortgage owed.
For both purchase and refinance transactions, the lender will hire an appraiser to find out the current market value. Once this value is known, the lender will divide the anticipated mortgage amount into the appraised value to calculate the LTV.
