The first step in obtaining a loan is Pre-Qualification. This will give you an estimate of how much money you can borrow. You should determine how much home you can afford even before you begin looking. By answering a few simple questions, we will calculate your buying power, based on standard lender guidelines. Pre-Qualification is available if you are just looking to get your feet wet in the home buying process. There are no credit checks at this point. This stage just gives you a general idea of what you can expect if you did decide to move forward with the official pre-approval.
Click here to Pre-Qualify.
You may also elect to get officially pre-approved for a loan which requires full verification of your income, credit, assets and liabilities. You will need to be officially pre-approved before you start visiting properties and/or making any offers.
Top reasons for being officially pre-approved
The Main Components of Lending Decisions
Although lenders conform to standards set by government agencies, loan approval guidelines vary depending on the terms of each loan. In general, approval is based on two factors: your ability and willingness to repay the loan and the value of the property.
LTV and Debt-to-Income RatiosLTV and Debt-to-Income Ratios
LTV or Loan-To-Value ratio is the maximum amount of exposure that a lender is willing to accept in financing your purchase. Lenders are usually prepared to lend a higher percentage of the value, even up to 100%, to creditworthy borrowers. Another consideration in approving the maximum amount of loan for a particular borrower is the ratio of monthly debt payments (such as auto and personal loans) to income. Rule of thumb states that your monthly mortgage payments should not exceed 1/3 of your gross monthly income. Therefore, borrowers with high debt-to-income ratio need to pay a higher down payment in order to qualify for a lower LTV ratio.
FICO™ Credit Score
FICO™ Credit Scores are widely used by almost all types of lenders in their credit decision. It is a quantified measure of creditworthiness of an individual, which is derived from mathematical models developed by Fair Isaac and Company in San Rafael, California. FICO™ scores reflect credit risk of the individual in comparison with that of general population. It is based on a number of factors including past payment history, total amount of borrowing, length of credit history, search for new credit, and type of credit established. When you begin shopping around for a new credit card or a loan, every time a lender runs your credit report it can adversely effect your credit score. It is, therefore, advisable that you authorize the lender/broker to run your credit report only after you have chosen to apply for a loan through them.
Self Employed Borrowers
Self employed individuals often find that there are greater hurdles to borrowing for them than an employed person. For many conventional lenders the problem with lending to the self employed person is documenting an applicant's income. Applicants with jobs can provide lenders with pay stubs, and lenders can verify the information through their employer. In the absence of such verifiable employment records, lenders rely on income tax returns, which they typically require for 2 years.
Source of Down Payment
Lenders expect borrowers to come up with sufficient cash for the down payment and other fees payable by the borrower at the time of funding the loan. Generally, down payment requirements are made with funds the borrowers have saved. If a borrower does not have the required down payment they may receive “gift funds” from an acceptable donor with a signed letter stating that the gifted funds do not have to be paid back.
Home loans come in many shapes and sizes. Deciding which loan makes the most sense for your financial situation and goals means understanding the benefits of each. Whether you are buying a home or refinancing, there are 2 basic types of home loans. Each has different reasons you'd choose them.
1) Fixed Rate Mortgage
Fixed rate mortgages usually have terms lasting 15 or 30 years. Throughout those years, the interest rate and monthly payments remain the same. You would select this type of loan when you:
2) Adjustable Rate Mortgage
Adjustable Rate Mortgages (often called ARMs) typically last for 15 or 30 years, just like fixed rate mortgages. But during those years, the interest rate on the loan may go up or down. Monthly payments increase or decrease. You would select this type of loan when you:
By carefully considering the above factors and seeking our professional advice, you should be able to select the one loan that matches your present condition as well as your future financial goals.
Top reasons for being officially pre-approved
Once you have found a property and have received a ratified purchase contract, you are now ready for official underwriting.
Your loan underwriter will verify all of the information you have provided. If any discrepancies are found, either the processor or your loan officer will troubleshoot to straighten them out. This information includes:
In order to improve your chances of getting a loan approval:
After your loan is approved and you receive the official CTC or "Clear to Close", you are ready to schedule a closing time and sign the final loan documents! You will be required to review your closing disclosure prior to the closing date and confirm that the interest rate and loan terms are accurate. The signing normally takes place in the title/settlement company's office, realty office or the lender's office. The closing time and place will be coordinated by the loan processor and you will be notified of all the closing details prior to the day. You will also be given wiring instructions a couple of days before closing "if your loan requires you to bring money to the closing table" (down payment/closing costs). Title companies typically require you to wire your closing funds (unless it's under $1,000). A purchase loan transaction will normally fund right after you have signed the loan documents. This is when you get the keys to your new home and it's time to Celebrate!
