When looking to purchase a new home, one of the first questions your Realtor may ask you is if you have been “pre-qualified” or “pre-approved” for a home loan. If you were like my wife and me when we purchased our first home, your response might be “what do those terms mean”?
I spoke with Spiro Hishmeh who is a mortgage banker and broker with Premier Lending Inc. who offered me his perspective on the mortgage loan process. He has been in the mortgage loan business for twenty years and has seen it all. Spiro says that If you want to get a general sense of what you could afford but are not yet certain when you plan to move, you should get pre-qualified for a mortgage loan.
This is a relatively simple process where you would provide the mortgage company your credit score, income, debts, and employment history. The mortgage company could then calculate how much of a mortgage you could potentially qualify for. With this information, you could narrow down the price range of homes and geographical area.
Once you know with certainty where you want to live, when you want to move, and how much cash down payment you could afford, Spiro suggests that you should apply for pre-approval for a home mortgage loan.
Being pre-approved for a home loan is a lengthier process as you are officially applying for a mortgage loan without an actual home specified on the loan. If you can’t find a home within 120 days, the loan will expire and you may have to start the process over again. An offer to purchase a home with a pre-approved loan lets the seller know you are committed and they will take your offer more seriously than an offer with no pre-approval. In this environment of multi-offer bids, it is pretty much a necessity to be pre-approved for a home loan before making an offer on a new home.
With that said, how do you go about getting pre-qualified or pre-approved for a mortgage loan? Well, you will need to go through a mortgage lender. The challenge is that there are many lenders to choose from. Mortgage loans are sold through thrift institutions, commercial banks, mortgage banks, credit unions, and mortgage brokers.
It can get confusing or even intimidating trying to decide which direction to turn. Spiro says that people tend to go to the banks or credit union where they have an existing relationship first because it is the easiest option. However, this may not necessarily be the best option, especially if you are not considered a strong candidate for a home loan at your banking institution.
Banking institutions tend to have more conservative lending programs and less mortgage products available. Therefore, their lending criteria is much stricter. Mortgage brokers can be a better option for those of you who might not qualify for a home loan at the larger banks. They act as the middleman between the banks and the buyers and can offer you several mortgage loan options designed to fit your financial situation. Over the years, Spiro has worked with many customers who went to their bank first but were either turned down for a mortgage loan or could not qualify for the best mortgage loan at their bank.
Regardless of whether you go to bank or mortgage broker, Spiro says that there are three basic criteria for securing the best mortgage loan:
- Debt as a percentage of your income – the lower the better
- Credit score – the higher the better
- Down Payment- the higher the better
As far as finding the right Mortgage Lender for you, Spiro offers 3 great suggestions:
- Obtain quotes from at least 3 different mortgage lenders and compare prices as no two loans are alike.Take the time to understand all of the fees associated with the loan.
- Interview mortgage lenders and ask as many questions as possible to determine if they understand your unique situation and are problem solvers. If they seem pushy or aren’t listening to you, follow your instincts and move on.
- As with any service related transaction, referrals are the best place to start. Ask your realtor, friends, or family who they have worked with in the past and if they were satisfied with the service they received.
For more information on how to shop for the best mortgage loan for you, please go to the Federal Trade Commission website link: https://www.consumer.ftc.gov/articles/0189-shopping-mortgage. Be sure to print out the Mortgage Shopping Worksheet.