3. Get Loan Preapproval 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. Many lenders
(the sources of money) and programs, for example, are
available right here in the finance section of Homestore.com
as well as through recommendations from local REALTORS®. 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.
Few people can buy a home for cash. According
to the National Association of REALTORS® (NAR), nearly nine
out of 10 buyers in 1999 financed their purchase, which
means that virtually all buyers -- especially first-time
purchasers -- required a loan.
What is it? Although not a final loan commitment, the preapproval
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.
"Preapproval" 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 preapproval letter, which shows your borrowing power. You
can visit as many lenders as you like and get several
preapprovals, but keep in mind that each one carries with it
a new credit check, which will show up on future credit
reports.
How do you get preapproval? 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.
Real estate financing is available from
numerous sources, including lenders here in the finance
section, 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.