The Preapproval/Mortgage Process

Getting preapproved for a home loan can be very confusing and if you find yourself confused or overwhelmed, don’t fret. . This information will clear up some of the confusion and will help you to understand the process step by step. Here are Steps involved in order as they occur:

Preapproval/Prequalification – The loan officer will gather some personal information from you to include date of birth, social security number, address, income and assets.  This information is used to determine whether you qualify for a mortgage and determines what type of loan you can obtain. The prequalification is different from the preapproval. See below for details regarding a preapproval. The prequalification is typically good for 90 days.

The types of loans available are:

• Conventional Loans – In general, these loans are the better loan to obtain. This is due to the lower private mortgage insurance factors, and overall easier process in getting the loan approved. Conventional loans are also known as Conforming loans and are purchased either by Freddie Mac or Fannie Mae. The minimum required down payment on these loans is 5% down and the down payment cannot be a gift from a relative. (Private mortgage insurance is insurance that protects the lender against a loss in case of a default. This insurance is also referred to as MI or PMI. PMI is required anytime a Buyer puts less than 20% down and is different from homeowner insurance.)

• FHA Loans – FHA stands for Federal Housing Administration and these loans are often the most popular choice for first time buyers because the minimum down payment is 3.5% down which can be a gift from a relative and the credit requirements for this loan are less restrictive.  The private mortgage insurance is higher, and the loan process is slightly more involved than that of a conventional loan, but FHA is still a wonderful loan and wonderful option when one doesn’t qualify for a conventional loan.
• VA Loans – VA stands for Veteran Administration. This loan is available to active, retired or inactive veterans who have served enough time in the service to earn eligibility for the VA loan.  In general, this loan does not require a down payment nor does it have any mortgage insurance requirements.
• USDA Loans – This loan is eligible ONLY  in designated rural areas.  This loan requires a minimum down payment of 1% and does not require mortgage insurance. To determine if the area you are interested in is eligible for rural housing, click here:http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfhprop&NavKey=propproperty@11
• Renovation Loans - There are several loans on the market that allow you to buy a home and to finance improvements into the loan. These loans are wonderful options when you are buying a property that needs a little TLC.

A  preapproval is a greater commitment from the bank and is issued once the documentation you provided to your loan officer and the documentation has been reviewed by an underwriter. You can make an offer on a property with either a preapproval or prequalification letter but it is very wise on your part to pursue a preapproval vs a prequalification because the preapproval is more concrete than a prequalification. You will be able to make an offer on a home that is  within the price range in which you have been approved. During this time, you will work closely with your real estate partner who will educate you regarding the real estate transaction throughout the bidding process. After you have identified a property, it time for the next step which is:

1. Submitting the offer – The real estate agent will submit an offer to the seller of the property based on what you feel the home is worth.  The real estate agent will structure the offer based on the terms of your preapproval letter and current home values in the area. The offer will be submitted in writing to the agent representing the seller. If the offer is accepted, you will go under contract. Sometimes it takes negotiations back in forth between you and the seller before the offer is accepted and sometimes the offer is denied altogether.
2. Full loan application – Once you are under contract, you and your loan officer will then begin the process of full loan application.  The loan officer will go over a great deal of paperwork that you will need to sign.
3. Underwriting the transaction   - After you have signed all of the initial paperwork, the loan officer will submit the loan for processing and underwriting. During this time, the bank will order an appraisal to determine if the property meets investor requirements. The Underwriter will review all of your financials to make sure the loan profile also meets investor requirements. Once the loan and property have been deemed to be acceptable to investor requirements, you will be ready to go to the closing and close on your new home.
4. Closing the transaction – To finalize the deal, you will go to a designated real estate attorney’s office. The attorney is chosen by either you or the seller. The day of closing, you, your agent, the seller, the seller’s agent will sign all of the final paperwork association with the loan.  A deed will be executed by the attorney deeding the property over to your name  and you will receive the keys to your new home.

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