Few people can buy a home for cash. According to the National Association of REALTORS®, nearly 9 out of 10 buyers now finance their purchases, which means that virtually all buyers — especially first-time purchasers — require a loan.
The real issue with real estate financing is not getting a loan (virtually anyone willing to pay lofty interest rates can find a mortgage). Instead, the idea is to get the loan that’s right for you — the mortgage with the lowest cost and best terms.
I routinely suggest that consumers start the mortgage process well before making an offer to purchase a home. By meeting with lenders — either online or face to face — and looking at loan options, you will find which programs best meet your needs and how much you can afford.
Pre-Approvals are recommended for another reason: contract forms often require buyers to apply for financing within a given time period, in many cases, 3 to 5 days. By meeting with loan officers in advance and identifying mortgage programs, it won’t be necessary to quickly find a lender, check credit, and rush into a financing decision that may not be the best option.
What is it?
“Pre-approval” means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a pre-approval letter, which indicates your borrowing power. You can visit as many lenders as you like and get several pre-approvals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports. However, you can “comparison-shop” over the course of a 60-day period and, though each lender will perform a credit check, your credit score will not be adversely affected.
Although not a final loan commitment, the pre-approval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained.
How do you get pre-approval?
Real estate financing is available from numerous sources, including mortgage companies that have worked with me or my peers. Based on my experience, I would be happy to suggest one or more lenders with a history of offering competitive programs and delivering promised rates and terms.
The loan officer will carefully review your financial situation, including your credit report and other information. The lender will then suggest programs which most-closely meet your needs. For instance, a first-time buyer may qualify for state-backed mortgage programs with little money down and low interest rates, while a repeat purchaser (someone who has bought a home before) with more equity (money invested in the home) might want to get a 15-year loan and the lower overall interest costs it represents. Typically, first-time buyers opt for the traditional 30-year loan, with either a floating interest rate or a fixed rate of interest over the life of the loan.
Melissa DelGaudio is a REALTOR®, an e-Pro and an expert in Real Estate Sales in Annapolis, Anne Arundel County and the Chesapeake Bay Region of Maryland.
