Before starting to seriously look for a home, you must have a ‘pre-qualifying interview’ with a loan officer. This can be done over the phone and should only take a few minutes.
After the interview, the loan officer will issue a “Pre-Approval Letter” which can be emailed directly to me.
While there are websites that offer to calculate how much house you can afford, a quick phone call to a LOCAL lender will prove to be much more accurate.
The rates and terms that you are quoted at this time might not prevail the day that you make an offer, but they should be close enough to serve as a guideline.
Many sellers will ask that potential buyers be pre-qualified prior to showing their home. This is especially true in the luxury home market.
I always try to include a ‘Pre-Approval’ letter when presenting an offer. It demonstrates to the seller that you are serious about your intention to purchase their home.
If you are purchasing a bank-owned property or one being held by a relocation company (think Pfizer) the offer will not be reviewed without a letter of pre-approval from a licensed mortgage lender.
Selecting a Lender
Once you have an accepted offer on a house, you will have 3-5 business day to ‘formally apply for financing’. This is when you fill out an application and pay the application fee (typically around $400-$500).
You are not required to continue with the institution that provided your pre-approval letter, but you should at least give them the chance to compete for your business.
Determining which lending institution is going to work best for you can take many phone calls over several days. Get started as soon as your offer has been accepted. Do not delay.
Be careful when comparing the PROJECTED monthly payments between lenders. These will include ESTIMATES of taxes and home owners insurance. The cost of your homeowners insurance will be determined by the company you choose, not your lender.
To make sure that you are comparing apples to apples, look at the total closing costs, minus the tax prorations and the interest rate. Ultimately, the tax proration, annual property taxes and insurance will be the same across all lenders.
Also be sure to ask for how long the lender will guarantee the quoted rate. This is known as a “rate lock”. Be sure it extends beyond the closing date!
Be sure to select a LOCAL Lender with offices in Washtenaw County.
Why You Should Use a LOCAL Lender
In the past several years, as mortgages have gotten more and more complex, there have been many deals that have fallen apart because the buyer chose to work with an out-of-county or Internet lender. (As a selling agent, I strongly advise my sellers not to accept an offer from a buyer using a lender from outside of Washtenaw County. I have seen too many problems too often.)
Lending regulations vary from state to state and even from county to county within Michigan. It creates a tremendous amount of confusion when a lender in Dallas, Texas or Oakland County tries to impose their rules on a transaction taking place in Washtenaw County. Often, the lender will refuse to fund the mortgage or change the terms of the loan which they previously promised and the deal falls apart. This comes AFTER the inspections have been completed, so the buyer ends up spending money on a house that they ultimately cannot buy because their loan doesn’t come through.
Your sales contract will have a contingency for “financing”. Meaning, that if you are not approved for your loan, you can get out of the deal without losing your Earnest Money Deposit (EMD).
It usually takes 4 to 6 weeks to get final loan approval, also known as a “Clear to Close”.
Do not be surprised if your loan officer asks for additional documentation while you are waiting for loan approval. This is very common. Please respond immediately to these requests; not doing so can delay your closing.
During this 4 to 6 week period, your “loan package” goes from your loan officer to an “Underwriter”. The Underwriter’s job is to make sure that everything on your application is correct and that you are not overpaying for your house. It can be a tedious process. Be patient.