Everyone knows they are supposed to get pre-approved for home loans before they go house shopping. It's one of those annoying pieces of advice you can't escape, like "wear sunscreen," "wash your hands before eating," and "you can't jump a Yaris over 15 hay bales just because someone did it on the Internet."
Groan. You have to do it. But how long will it take to get pre-approved for your home loan so you can get to the fun part?Click to see today's rates (Sep 25th, 2017)
Probably not as long as you think. This first step takes about eight seconds.
When you begin considering a home purchase, you go through a few steps. And one of those first steps is deciding how much you are comfortable forking out each month when you pay your mortgage.
You might not realize this, but you have already begun the process of pre-approving your mortgage.
Think about it. If you're paying $1,500 a month in rent now, and writing a $2,000 check makes you queasy, you're already setting some limits. Without even asking a lender.
Another tool people use to estimate what they can afford to spend for a home is a mortgage calculator. Takes about a minute.
They just input their monthly income and debt payments, and voila! They get a range of payments and / or loan amounts that are probably affordable for them.
This means that statistically, people with debt and income positions similar to theirs are unlikely to default on their home loans. But that's all it means. Don't get too excited.
Many people take these pre-qualification letters to their agents or show them to home sellers to prove they are ready to buy homes and serious about their offers.
The only problem is that none of this information has been verified in writing or examined by an underwriter. Many pre-qualification letters are issued without anyone even pulling a credit report. The buyer's credit history could look like a rap sheet for all anyone knows.
Sellers and real estate agents know this. And they are probably laughing at you right now.
Beyond the bird cage liner that is your average pre-qualification letter, you can actually get a serious document that has some clout and some meaning.
Take five minutes to pull up your bank balances and snag your last pay stub. Then call a lender and ask him or her to fire up some software.
Welcome to the world of fintech, or financial technology. In the mortgage industry, it's called an automated underwriting system, or AUS.
Many lenders have their own proprietary ones, but the most widely-used are Fannie Mae's Desktop Underwriter (DU), and Freddie Mac's Loan Prospector (LP).
You provide a loan officer or processor your income information, bank balances, and permission to check your credit. The AUS runs everything through some complex calculations and makes a decision based on information provided by you.
The system issues a decision. Usually, something like "Approve," "Refer," or "Refer With Caution." "Approve" means as long as your documents match your information, you're probably good to go.
"Refer" means something might need to change for you to get approved. You might not be eligible for the program, or they need more information. "Refer With Caution" means that unless something like identity theft is a factor, you are probably not approved.
Your lender's decision comes with a list of things needed to finalize your pre-approval. For instance, you may approved for a $250,000 home purchase with a $200,000 loan.
You get a letter (for example) saying that to complete your loan, you must supply bank statements showing that you have at least $80,000, a pay stub proving that your earn $78,500 per year, and a statement from your auto lender proving that the loan was paid off last month.
These are normal things you probably have in a file or can get with one phone call. Maybe an hour, tops.
Having a pre-approval letter in hand is a powerful thing when you go house hunting. Almost like a briefcase full of cash (and probably safer to carry around). So next time you're watching the tube (and forgot to DVR it so you're stuck with the commercials), don't waste that time. Grab the stuff you need during the stupid beer ads and then make a call.
You could be pre-approved by the ninth inning.
Current mortgage rates change all the time, like everything else in financial markets. While you're talking to lenders about getting pre-approved for your mortgage, ask them for rate quotes too. You will soon be saving time and money like a pro.Click to see today's rates (Sep 25th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)