Understanding the Lending Process
Once you’ve found the home you want and negotiated a price, it’s time to get your loan. Your agent will help you select a licensed loan professional who can guide you through the entire lending process – ensuring you get the right loan for your circumstances.
While you can expect to provide information about your employment history, credit, and financial assets and liabilities, the home-loan process may very well be the easiest part of purchasing a home.
Interest rates are among the lowest in history right now, but they are likely to increase in the future. That’s why you may want to consider a rate lock for your home loan. If you decide to let the rate float, you may have a rate that is higher or lower than the rate in effect on the date of your application.
Next is a property appraisal, which determines the fair market value of the home you are buying. Once your appraisal is received, you can begin shopping for homeowner’s insurance (although, you won’t want to commit to an insurance purchase until after your loan is approved).
You will be asked to sign and return all required disclosures and additional documentation to satisfy the loan conditions within 24 hours of receipt. This will help keep your loan review on schedule. Also, keep in mind that you should not open any new lines of credit at this time.
Your final loan docs will be drawn when all underwriting conditions are met. At that time, you’ll sign for settlement and escrow. As part of the settlement phase, your loan officer will wire the loan funds to an escrow account or send a cashier’s check to the closing agent (e.g., a title company, attorney, or escrow agent, depending upon the transaction state). Soon after, the property ownership transfers from the seller or the seller’s lender to your loan officer, and you can then schedule your move-in.
Pre-qualification vs. Pre-approval: Do You Know What is Best for You?
If you’ve entered the world of real estate (or you’re about to), you may find that the terms “pre-qualification” and “pre-approval” are often used interchangeably even though they mean two totally different things.
Knowing what some of these differences are before you start shopping for a home (and a home loan) can determine whether you actually close on your planned dream home purchase.
Pre-qualification – Good
- Snapshot of your buying power
- Informal process, easy to obtain
- Unverified, undocumented financial information
- Not taken as seriously by sellers or real estate agents
- No commitment by a lender to complete loan
Pre-approval – Best
- Detailed overview of your buying power
- Formal process, harder to obtain
- Verified, documented financial information
- Taken seriously by sellers and real estate agents
- Willingness by your lender to complete the loan
A pre-approval letter may require a little more time and planning to obtain, but it will be well worth your effort in the long run. With a pre-approval, you’ll be a more confident buyer and, perhaps more importantly, you’ll be a better negotiator who will command the respect and attention of sellers. Just as important, your pre-approval letter will help you focus on homes in your price range, helping you close faster when you’ve found that perfect property.