Loan Pre-Approval
Your agent should encourage you to see a lender before home shopping and inform you to discuss all loan options with your lender before signing a purchase agreement. Please keep in mind you submit application to any lender you wish, this will give you the chance to compare different offers from different lenders.
Loan Application and Documents
Based on a preliminary credit application, you will have a chance to acquire a loan pre-approval. Although pre-approvals characteristically comprise certain conditions and time frames, they also signify preliminary pledges and abolish numerous questions. By getting your pre-approval you will have a better idea of the upper loan limit you will borrow from your lender.
The process of obtaining a loan begins you to make an application. If the application meets certain requirements, the lender issues a formal loan commitment.
You will be required to submit personal information about your employment, income, assets (such as bank account information), and other financial obligations. Your lender needs all this information to assure that the security for the loan is adequate. To gain this knowledge your lender will order an appraisal. The appraisal will contain a legal description and evidence about improvements, title, encumbrances, and taxes.
One of the most important factors when applying for a loan is your credit score,
Although credit scores are provided in the free credit reports, scores are readily available from the credit bureaus for moderately small fees. The investment will be well worth since your score will provide you a good idea of how you will be regarded by a possible creditor. Please keep in mind credit scores range from less than 400 up to 900; higher credit score means lower credit risk. You can take steps to improve your credit score before making a loan application and looking at a property.
There will be 5 things when your lender evaluates your credit score:
- Past payment performance
- Credit Use
- Credit History
- Types of Credits in Use
- Credit report inquiries
Credit scores affect not only your ability to obtain a loan but also the interest rate a lender will charge. The score even influences the homeowners’ insurance.
In addition to assessing the value of the collateral being pledged for the loan, the lender evaluates the capacity and credit-worthiness of the borrower based on the following criteria:
- Occupancy. Lenders provide the best rates if you will dwell in the property.
- Income. Lenders will need to determine if you have enough income to sustain yourself and expenses while timely fulfilling your mortgage commitments.
- Assets and cash reserves. Lenders inspect your current bank accounts, frequently demanding for confirmation of resources. You will need to prove the account belongs to you and not from somebody expecting settlement.
- Debt. Ideally, lenders prefer that housing payments (PITI) and association fees be less than 28%of gross income and, when combined with other debts longer than 10 months or so, is less than 36%of gross income.
- Loan-to-value (LTV). If the down payment is less than 20%, lenders frequently require some insurance to cover deficiencies in case of default.
Pre-Approval and Loan commitment
After submitting your loan application, the lender will analyze all the information we talked about earlier. If you are qualified, your lender will send you your loan commitment.
A loan commitment is the lender’s initiation to lend you a certain amount of money under specific terms and for a specified length of time, using a particular property as collateral. The commitment letter is in writing and, once signed by you and returned to the lender, effectively creates a contract. This also means that the you agree to the lender’s terms for the loan.
Loan commitments include a number of conditions or contingencies that affect the lender’s ultimately fulfilling its promise of a loan. Most have an expiration date, which means the lender is not obligated to provide the money after that date. Commitments may be conditioned on events; for example, if you are selling the currently owned property or providing a title insurance policy at settlement.
Also, loan commitments may be withdrawn prior to closing if the lender realizes that you have participated into additional loans that resulted in increasing your debt beyond the mortgage guidelines.
Your agent should inform you to avoid major purchases until after closing. Any major changes (losing your job, running up too much credit, a big purchase) will affect your mortgage even if you were pre-qualified.
