#1 You can be PreQualified.

#2 You can be PreAPPROVED

#3 OR you can begin the loan process so you can

        • get a lot of the work behind you,

        • know definitively you can get a mortgage,

        • have time to work out any “bugs” in your situation

        • get the supporting documentation

        • & close more quickly once you find the home you want to buy. 

Obviously #3 will allow you to sleep better at night.

Let me explain the difference between the three & explain why you’ll have to be very specific about what you want and what information you furnish us!

#1 A PreQualification is a good first step.
Early in the process when you are just beginning to think about the possibility of buying a home it is a way to get some idea of what price home you might be able to qualify for.  Unfortunately it is in no way binding and can be quite inaccurate because it’s totally dependent upon the information you give to the person doing the PQ.  And as you’ll see in a second, in most cases you won’t know how to accurately answer even the question of “What is your income?” and you definitely won’t know other “compensating factors” to offer that might allow you be approved for more home.  Pulling your credit solidifies some information but just because your credit was pulled does not make this a PreApproval.

#2 A PreAPPROVAL goes further
It gathers all the information needed (think mini-loan application) so someone can tell you exactly what loan amount, downpayment, loan types and to a lesser degree what type of interest rate you will be eligible for. (whether it will be low, medium or high)  


Let’s talk about interest rate for a second, the reason it can't tell you your exact rate is that your rate cannot be locked until you’ve found a property and you’ve made a loan application.  Rates change daily by a small amount plus factors such as loan amount, down payment, property type, Debt To Income (DTI) & credit scores affect your rate as well as does the length of the lock period. 

Once you know exactly what are you going to buy, the exact price & address, when are you going to buy it and when will you want to close then you can lock your rate.   FYI if you have a choice, a short lock period is less expensive than a longer lock period.  

A PreApproval is usually what a good Realtor will require before they’ll show you homes.

BEFORE WE GO ON TO #3 HERE'S A WARNING:  

In 2010 the Super Majority passed a law that makes it a little harder for those of you with a fluctuating income such as a self employed person, people with Overtime or people on commission or those that get bonuses.  This law decided that YOUR TAX RETURN IS YOUR INCOME!!

Under the new laws are no more stated income loans except for Non QM
(what we used to call “B”) money and the B stood for Bad. 
We’ve got them if you absolutely, positively want them.

For mortgage purposes your income is not what your paycheck or boss says.  Which means if you take tax deductions you are reducing your qualifying income and you won’t be able to buy as much home.  Whoopsie!  See why I said you probably wouldn't be able to accurately answer the question of “What is your income?”. 

#3 Making your Loan application prior to finding a property allows you to close in 10-15 days many times which could give you a big advantage when it’s time to negotiate the sales contract with the Seller!

So Let’s Summarize

To get a PreQualification (#1) all you need is the information in your head.  It won’t be precise, but it will get you “in the ballpark” presuming that some of the missing information doesn’t totally change everything.

To get a PreApproval (#2) you will need to give the Lender proof of your income by way of paystubs and tax returns/W2s, & bank statements to show your assets plus your credit will need to be pulled.  

To do a loan application (#3) go to the page on Basics - Mortgage Application and follow the instructions there.  The video really makes things understandable and easy.

Now you know enough to decide what you are comfortable doing at this time.  Early in the game many people just want a PQ to see if it’s even possible to buy a home and then as they get more serious they progress to a PreApproval. 

EVERYONE needs to begin the loan app before they begin seriously looking because you are going to find it’s easier to find a home you like than you think.  Once you’ve found the house you want it’s too late to jump to the head of the line in the bid process.  If you’ve been Pre Approved you won’t be at the back of the line, but there’s a better than average chance you won’t get your contract accepted and that will break your heart.

We don’t want you to be heart broken so we try to to educate our customers so they know how get what they need for themselves. 

TIDBIT #1 An online loan application reduces the probability you’ll be approved for your mortgage & guarantees you that your process will be more complicated than if you applied in any way that involves a human.

WHY? Almost all fraud originates from online loan applications so online loan applications are
    #1 scrutinized much more carefully,
    #2 they have a much higher turn down rate,
    #3 IF you get approved they have many more loan conditions which makes the whole loan process much more complicated.   So you don’t want to be branded as making an online loan app.

I’ll tell you a lot more about this on the Basics - Mortgage Application page, but for now let’s go on and talk about the next step in your progress towards becoming a home owner.

You've gone through a successful PQ, PreApproval or Loan Application, so what’s next? 
The next step is for a Lender to issue a “Conditional Approval” letter so the Realtor will show you houses and so the Seller will accept any contract you write.

In Texas there are only 2 types of preliminary Conditional Approval
letters a Lender is allowed to produce:

#1  Pre-Qualification  (Form A)

Obviously this is issued after you’ve been PreQualified. 

But a PreQualification is useless for the purposes of writing a real estate contract as Sellers want to know for sure you can qualify.  While it does help you understand how close you are to being able to buy a home & is a good very first step, you don’t want to go looking at houses with just a PQ.  

#2  Pre-Approval  (Form B)

PreApproval sounds official and sounds like it is giving you a very definite answer.  Unfortunately a mortgage PreApproval isn’t quite as definite as being PreApproved for a credit card or a car loan, but it is several orders of magnitude better than a PQ.  

The actual loan approval process requires quite a bit of other documentation that isn’t normally done at PreApproval time which is why a PreApproval is not an absolute approval.  BUT if all the information you gave us is correct, nothing changes in your situation, all the information you gave the Lender can be verified AND you buy an approvable property, then you can secure a mortgage!  It’s not perfect, but it’s as far as any mortgage Lender is legally allowed to go without the loan application.  A minimum of a Pre-Approval will be required if you are going to write any kind of real estate contract.

A credit check does not make it a Pre-Approval. 

So look very carefully at the top of any “commitment letter” you may have gotten from another Lender and make sure it doesn’t say it’s a Form A (PQ) when you needed a Form B (PreApproval).

Here’s a twist you’re not used to in other types of loan approvals.  For an official mortgage approval both you and the property have to be approved. 

So now let’s talk about what constitutes a Loan Application for a bit since

many time frames & legal items are now legally tied to loan application dates!

It’s now super easy to make an accidental loan application.  If you give the lender 6 pieces of information under the new laws it’s a loan application whether you want it to be or not!

If you tell the Lender these 6 things you have made a loan application even if pen has never touched paper and you’ve only spoken over the phone or exchanged a few texts or emails.  So be sure you tell a Lender no more than 5 of these things!

a) name

b) income

c) Social Security number

d) Property address

e) An estimate of property value or sales price

6. f)And the loan amount
   

If you haven’t bought a house but are still in the looking stage you won’t have a property address which makes things simpler for you because you can’t give all 6 items.

Lenders don’t want things to develop into an accidental loan application nearly as much as you don’t want because it’s a lot of unnecessary work for them. 

Why doesn’t the lender want this to happen?  Under the new laws once your conversation becomes a loan application several things are set into motion & the Lender has to:

a) issue you a binding Loan Estimate - LE (which used to be known as a Good Faith Estimate of closing costs);

b) they have to officially enter you into the government system of record keeping which pretty well guarantees there will be lots of changes to your full app later and thereby will trigger harsher underwriting.

LOAN ESTIMATE NUMBERS ARE NOW CAST INTO CONCRETE AND CANNOT BE CHANGED!  Which means certain of your closing costs are locked before it’s possible to know what they will be.  If there are any changes the Lender doesn’t have any option except to redo a lot of information to institute a “Changed Circumstances” or turn you down and begin all over again.   So as you can see an accidental loan application isn’t good for anyone!

If an exploratory phone call early in your looking process generated the accidental loan app then you probably wouldn’t be delayed, but if you are calling on a real house that you end up buying, this can make it take even longer to get to closing.

Because of this new law most Lenders don’t want to take a loan application until you have a fully negotiated contract.  

For over 2 years Lenders have been prohibited from taking a loan application prior to you finding a home which has greatly lengthened the approval process.  BUT . . . under Trump’s term he has already made some changes in enforcement that now allows us to once again take a full loan application prior to you finding a house which will reduce loan processing time, allow a quicker close date, give you time to work out any “bugs” in your situation & give you an edge over all those other Buyers out there running around with only PQs or PreApprovals.  This could come in real handy if you should get into a bidding situation with multiple buyers for the same property.  While most lenders still won’t take a TBD loan application FINANCIER$ will because it’s the best thing for you.

Now you know all you need to know to ensure you get the proper type of Qualification & the information needed to keep you out of trouble which can delay things.  If you’ve ever got any questions about any aspect of the buying and financing process don’t hesitate to give us a call.  We don’t work Banker’s hours we work when you need us.  So even if it’s after hours, weekends or a holiday, if you have a question call us!  If we can’t get to the phone instantly we will get back to you very shortly.

972. (972)644-8244
     

(817) 204-0028 

Here’s another little tip for you. 
This is the website that allows you to Opt Out of junk offers:
https://www.optoutprescreen.com/

It will Opt you out for 5 years!

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