Few people
can buy a home for cash, which means that virtually all buyers -- especially
first-time purchasers -- require a loan. The real
issue with real estate financing is not getting a loan (virtually anyone willing
to pay lofty interest rates can find a mortgage). Instead, the idea is to get
the loan that's right for you -- the mortgage with the lowest cost and best
terms.
REALTORS routinely suggest that consumers start the mortgage process well
before bidding on a home. By meeting with lenders -- either online or face to
face -- and looking at loan options, you will find which programs best meet your
needs and how much you can afford.
REALTORS also recommend preapprovals for another reason: Purchase forms often
require buyers to apply for financing within a given time period, in many cases,
seven to 10 days. By meeting with loan officers in advance and identifying
mortgage programs, it won't be necessary to quickly find a lender, check credit,
and rush into a financing decision that may not be the best option.
What is it?
"Pre-approval" means you have met with a loan officer, your credit files have
been reviewed and the loan officer believes you can readily qualify for a given
loan amount with one or more specific mortgage programs. Based on this
information, the lender will provide a pre-approval letter, which shows your
borrowing power. You can visit as many lenders as you like and get several
pre-approvals, but keep in mind that each one carries with it a new credit check,
which will show up on future credit reports.
Although
not a final loan commitment, the pre-approval letter can be shown to listing
brokers when bidding on a home. It demonstrates your financial strength and
shows that you have the ability to go through with a purchase. This information
is important to owners since they do not want to accept an offer that is likely
to fail because financing cannot be obtained.
How do you get
pre-approval?
Real estate financing is available from numerous sources, including lenders here
in the Real Estate Services section of RI Living.com, mortgage companies that
have worked with local REALTORS and in some cases, individual REALTORS
themselves. Based on his or her experience, the REALTOR may suggest one or more
lenders with a history of offering competitive programs and delivering promised
rates and terms. The loan
officer will carefully review your financial situation, including your credit
report and other information. The lender will then suggest programs which
most-closely meet your needs. For instance, a first-time buyer may qualify for
state-backed mortgage programs with little money down and low interest rates,
while a repeat purchaser (someone who has bought a home before) with more equity
(money invested in the home) might want to get a 15-year loan and the lower
overall interest costs it represents. Typically, first-time buyers opt for the
traditional 30-year loan, with either a floating interest rate or a fixed rate
of interest over the life of the loan.
