Guide To Getting Approved For A Mortgage
One of the most common home buying FAQs from not only first time home buyers but buyers in general is, “what are the steps for getting approved for a mortgage?” Many buyers don’t understand what a mortgage approval is, why it’s important to get approved for a mortgage when buying a home, and also what the steps are for getting an approval.
One of the most important steps in the home buying process is getting approved for a mortgage. Without a mortgage approval a buyer puts themselves at a huge disadvantage when compared to other buyers in the marketplace. This is especially true if a buyer is buying a home in a sellers market.
In this article you will find out how to get approved for a mortgage when buying a home. Not only will you find out what the steps are to getting a mortgage but also you’ll find some helpful information about what it means to get approved for a mortgage and why it’s important when buying a home.
What Does It Mean To Get Approved For A Mortgage?
One of the most common misconceptions that home buyers have is that a pre-qualification and pre-approval are the same. This is absolutely incorrect and there are actually many differences between a pre-qualification and a pre-approval.
When buying a home, it’s very important what it means to be pre-approved for a mortgage. A mortgage pre-approval is when a lender provides a buyer a written commitment to a buyer after they’ve verified many documents and information that has been provided by a buyer. This is a huge difference between a pre-approval and a pre-qualification, since pre-qualifications are typically issued after receiving verbal information from a buyer, not actual documentation.
To be approved for a mortgage a buyer must supply a lender important documentation and proof, such as bank statements, tax returns, and employment verification. Once an approval is issued for a mortgage there are generally conditions that still need to be satisfied, however, there are fewer than a pre-qualification because the documentation and proof has been verified by the lender already.
Why Is It Important To Get Approved For A Mortgage When Buying A Home?
Getting approved for a mortgage is very important when buying a home, for several reasons. Many buyers don’t understand why real estate agents ask for a pre-approval before showing them homes.
One reason why having an approval for a mortgage is important is because an approval will educate a buyer on the price range of homes they should be looking at. It makes absolutely no sense for a buyer to look at a home that is listed for $250,000 if they only can get approved for a $200,000 loan.
Another extremely important reason to get approved for a mortgage when buying a home is that an approval makes you stronger in the marketplace. Once you find a home that you love and want to pursue, being approved for a mortgage increases the chances that your offer will be accepted.
Being approved for a mortgage is even more important in a competitive sellers market. As one of the top Realtors in Rochester NY, which is a very competitive sellers market right now, an approved buyer has a leg up on their competition who are only pre-qualified from a sellers viewpoint. A seller is going to accept an offer from an approved buyer versus a pre-qualified buyer, assuming the offers are somewhat similar.
There are other reasons why being approved for a mortgage when buying a home is important, such as;
- Eliminates heartbreak if a buyer is unable to get a mortgage after finding a property they love
- An approved buyer has better leverage when negotiating with a seller
- Allows a buyer to move quicker
- Proves to a real estate agent that a buyer is a ready, willing, and able buyer
What Are The Steps For Getting Approved For A Mortgage?
The process of getting approved for a mortgage can vary slightly, however, the steps involved are fairly similar in most circumstances. If you’re wondering what the steps are for getting approved for a mortgage, read on to find out. Below you will find out what happens from initial contact with a mortgage broker to when the final clear to close is received.
Shop Around For A Local Mortgage Broker
The first step towards getting approved for a mortgage is to shop at a couple of the top local mortgage brokers. It’s very important to know how to interview real estate agents when buying a home, but it’s also very important you know how to find a top local mortgage broker.
As you notice, the word “local” is in bold in two places above. This is to stress the importance of finding a local mortgage company when getting approved for a mortgage. One reason why getting approved by a local mortgage broker is important is because the loan will be processed and underwritten at the local level. Getting approved for a mortgage by a large, national mortgage broker may mean that your file is not reviewed, processed, and underwritten locally, which can certainly come with some challenges throughout the process.
When shopping around for a local mortgage broker it’s recommended that you do some research on who the top local mortgage companies are in your area. If you’re not sure if a company is quality or not, you should consider asking your real estate agent who they suggest for local mortgage companies. A top real estate agent will have several top mortgage consultants that they’ve worked with in the past that they know do a great job.
If you’re looking to get a mortgage in Rochester, NY to purchase a home and are unsure of who the top Rochester NY mortgage companies are, click the image below, fill in the form with your information, and I’d be happy to suggest a couple top mortgage lenders in the area for you to contact!
As you shop around at local mortgage brokers, it’s important to find out from each of them if they have a cost breakdown. One pretty popular frequently asked question about mortgages relates to what fees a lender charges. Each lender will have different charges for their applications, underwriting, processing, and a variety of other fees. It’s suggested that you ask for a cost breakdown from each lender you’re thinking about using.
The process of getting a mortgage involves disclosing information about your financial history, so it’s important as you shop around that you’re comfortable with the mortgage consultant. Since you’ll be sharing information about your finances, if you’re not comfortable with the consultant, it can make for a very uncomfortable and poor experience.
Complete The Mortgage Application
Once a buyer decides which mortgage broker they would like to get their mortgage from, the next step in the process of getting approved for a mortgage is to complete the formal mortgage application.
One important part of the mortgage application is the type of loan and the terms of the loan. For buyers who are asking themselves, “what type of mortgage is best for me,” they need to discuss with their mortgage consultant about their options. Is a 30 year fixed mortgage the best fit or possibly an adjustable rate mortgage?
Some buyers believe they have to find a property before completing their mortgage application since it is a part of the application. This is not necessary, since a mortgage approval can be issued with a condition of finding a suitable property.
Other information that will be required to complete the mortgage application includes the borrowers information, assets, liabilities, employment information, income, and expenses. When a buyer applies for their mortgage, they will be instructed on the documents they will need to bring to their application appointment. A buyer who understands what documents are needed when applying for a mortgage will make the process seem less stressful and also will expedite the approval process.
Bank Appraisal Is Completed
Anytime a mortgage is involved as the type of financing in a real estate transaction, a bank appraisal is going to need to be completed. A bank appraisal is a detailed evaluation of a properties value by a non-biased professional who is representing the lenders best interest to ensure the home is actually worth what a buyer and seller agree it’s worth in a purchase offer.
There are several methods to determine how much a home is worth and a bank appraisal is one method. If a bank appraiser uses the comparable sale method, they will be looking for at least 3 sales in the past 12 months of comparable properties to the subject property to confirm the sale price is inline with the real estate markets recent sales. This method of home valuation is similar to what a real estate agent does when completing a comparative market analysis, frequently referred to as a CMA.
The bank appraisal is an important step in getting approved for a mortgage since a bank is not going to give a buyer a mortgage for more than an appraiser says it’s worth. A home that appraises for less than the sale price is one of the most common problems with bank appraisals.
File Is Sent To Processing & Underwriting
The next step in getting approved for a mortgage is the processing and underwriting of the loan. It’s important to understand when getting a mortgage what each of these professionals tasks and responsibilities include.
A loan processor is responsible for preparing a buyers loan information and application to present to the underwriter. A processor is in charge of collecting documents from a buyer, such as, updated bank statements and pay stubs. The processor will make sure all documents that will be required to get approval for a mortgage are included and that all the numbers are calculated correctly. A file that is properly processed and in the correct order will generally receive a commitment or declination much quicker than an unorganized file.
Once the file is prepared, it is sent to the mortgage underwriter. The mortgage underwriters responsibility is to assess and determine if a buyer is eligible for the mortgage that they are applying for. The underwriter will either accept or reject the loan based on a buyers credit history, assets, debts, and other factors.
Mortgage Commitment Is Issued
Once a file is processed and underwritten, if the loan has been approved, a written mortgage commitment is issued to the buyer. A mortgage commitment will outline the specific amount of the mortgage loan, the number of years to repay the mortgage, the interest rate, and other important figures. Once the written commitment is sent to the buyer they have a specified amount of time, usually 5 to 10 days, to review the commitment, sign, and return it to the lender.
Once the mortgage commitment is issued, the buyer can now be assured the financing needed to purchase the home is now ready. Even though a mortgage commitment is issued, it is still vital that a buyer does not drastically change anything with their finances. There are several reasons why a mortgage is denied after an approval is received.
For example, recently while selling a home in Irondequoit NY, a buyer decided to purchase a new car prior to the closing. The additional debt that was incurred by the buyer made a significant impact on their debt to income ratios which ultimately led to their mortgage being declined just before closing.
Mortgage Is Cleared To Close
Before a closing can be scheduled, the lender will need to “clear” the loan for closing. One of the most popular reasons why a real estate deal falls through is because a buyer loses their job prior to receiving their final clear to close.
Prior to clearing a mortgage for closing, a lender will complete a few tasks. The tasks that must be completed prior to clearing the file include obtaining a “soft” credit pull, verbal verification of employment, updated bank statements, and updated pay stubs.
The necessity of getting approved for a mortgage when buying a home cannot be understated. There are tons of reasons why having an approval for a mortgage when shopping for a home is vital.
As you can see from the above information, getting approved for a mortgage is not rocket science, however, it does require the buyer to put forth effort. If a buyer takes several days to supply documents to a lender it will make the amount of time required to get approved for a mortgage increase.
It’s important while getting approved for a mortgage that a buyer is responsive and quick with obtaining documentation that is required.
Other Top Mortgage Resources & Articles
- Top 10 Mortgage Mistakes To Avoid via Maximum Real Estate Exposure
- Advice For Mortgages & Home Financing via Bundlr
- The Best Mortgage and Financial Advice Articles via Listly
Are you looking to get approved for a mortgage in Rochester, NY? If so, the above information and advice should help you understand what the steps are. If you still have questions or are looking for a recommendation to a top Rochester NY mortgage broker, contact me, and I’d be happy to recommend a couple top lenders in the area.
About the authors: The above article “How To Get Approved For A Mortgage When Buying A Home” was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.
We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.
© 2016, Kyle Hiscock. All rights reserved.