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It is very important that a potential homebuyer speaks with a mortgage representative before going into contract on a home. Buying a home with little or no money is
possible but it must be planned out correctly. There are many ways to lessen the amount of cash needed to buy your “dream house”, You must choose the best program that fits your situation. The property that you choose must meet the requirements of the mortgage program chosen. Even then, you might be short on cash to close, and might need to ask the seller for “help’ by paying some of your closing costs. A good mortgage representative can guide you and your realtor through all this.
When do decide to put an offer on a home, the seller is going to want to be sure that you are a qualified buyer and will require some letter of assurance from a lender. There are three types, a pre qualification letter, a pre approval letter, and a credit approval commitment.
Pre Qualification Letter - This is the least strong of the three. Basically, it is the loan officer stating that he has performed a verbal interview with you, and based on what you told him, he is confident that you can obtain a mortgage. Very often, with a low down payment, this letter is not strong enough, because the lender hasn’t viewed your financials, and may have not even run your credit report. Having this type of letter might sway a seller into choosing a different offer if there are more then one offer on the table. If a letter is needed right away, then this might be the only option available to you. Since we recommend that you meet with your loan officer before you submit an offer to purchase, this shouldn’t be needed, since you would have supplied your loan officer with all the documents needed for him to supply an actual pre approval.
Pre Approval Letter – This letter is stronger then the pre qualification, and is usually all you would need to present an offer. The letter is basically telling the seller that the loan officer has reviewed your credit, income documents, and asset statements and he/she is confident that you will be approved. It is not a guarantee, since the loan officer does not make the final credit decision. This is made by the lender’s underwriting department. It is simply an opinion based on the loan officer’s experience.
Credit Approvals - This is the strongest of all the letters. Basically, you have applied for a mortgage application with the lender, using a hypothetical sales price. The loan is actually processed and given to an underwriter, who approves your loan. Since the loan was approved, there is no question in the seller’s mind about whether you will receive the loan, as long as the sales price of the actual home is lower then the credit approval. It is used for a couple of reasons. If you are a borderline borrower that has issues, you will be able to work out your issues before finding a home, and be sure that you will obtain financing. It is also used where timing is important.
Lets say that you are going to need a quick closing. This gives you the ability to process out your loan
while you look for houses. It speeds up the process. It works well with bank owned properties also, because the bank is more likely to accept a lower offer if they know that it is a quick closing and the borrower already has financing arranged.
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