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Mortgage Pre approval questions
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If there are any people that work in the lending field, or who have been through this process that can help.


My wife and I are preparing to purchase our first home. We would like to get into something within the next 1-1.5 years before our oldest child starts school. We are financially able to get into something now, although it would be tight. We are definitely not in a rush and will only improve our purchasing power by waiting. I spoke to a lending officer at the bank and was told that I shouldn't begin the pre approval process for a mortgage until I am ready, since they run your credit resulting in a nick in your score. The questions that I have are really in regard to obtaining a pre approval just to have it in case something does come onto the market that I would like to jump on.
1-The negative impact of a credit check only lasts 3 months, which is the amount of time that a pre approval lasts, resulting in no negative effects when it comes time to renew the pre approval?
2-Is the renewal process much easier than the initial pre approval process? I was told that getting a pre approval is a PITA
3-If so, what will be updated in the renewal-account balances, pay stubs, etc...?
4-If the renewal process is easier and faster, doesn't it make sense to just get a pre approval to get the PITA work out of the way now? assuming that I can renew every 3 months for as long as I want
5-Is there a limit to the amount of times that I can renew? the lending officer seemed to not think my idea was a good one, however I got the impression that he didn't want to do extra work.

I appreciate any answers, thanks.
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Re: Mortgage Pre approval questions [dbikelink] [ In reply to ]
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IF your confidence level is high that you will qualify, then just wait. But since this is your first house, you probably do not know all the hoops you have to jump through these days before getting a prime loan.

We could help you more if you tell us a little more info, like purchase price, your down payment, what incomes you are going to use, how much in liquid assets do you have in reserve, what do you think your credit score is?( you can get an approximation from freecreditreport.com)

I was right where you are now a few months ago, but ready to pull the trigger right now. I did do a pre approval, but that was because I'm on the edge on this latest house on purchase price. The last couple were well within my means, but still night mares to get final approval. It really is all about income and monthly payments. They really don't care if you have a million bucks in your bank account, just so long as you have enough for the down and some months payments in reserve.

I know two people(retired) that went for loans and could not get them. They just paid cash for the houses. Seems weird that it is really only about income, leaves a lot of older folks with huge nest eggs out in the cold.
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Re: Mortgage Pre approval questions [dbikelink] [ In reply to ]
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It took us a nearly a year from opening an application with a mortgage broker to when we finally closed, my credit was only pulled once.

Renewals were very easy, simply sign some forms from your existing bank. Moving to a new bank is probably a bit more work, but I've never done it.
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Re: Mortgage Pre approval questions [dbikelink] [ In reply to ]
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I bought a new house Memorial Day. Prior to that I had put a bid in on a home Christmas Eve. It took about 30 mins to get the pre approval. Phone interview and providing some docs. I kept the pre approval until we put in offer on the current home.
Disclaimer, I work for a bank and have a dedicated loan officer that works with my team. But that being said I don't think it was every a lot of work to get a pre approval for one of our clients.
In fact our loan officer recommend I get the pre approval right away and renew. But we were actively looking.
Do you know your current credit score? Are you dealing with a small local bank or larger national ?

"I think I've cracked the code. double letters are cheaters except for perfect squares (a, d, i, p and y). So Leddy isn't a cheater... "
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Re: Mortgage Pre approval questions [dbikelink] [ In reply to ]
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Ok, I used to work in the mortgage industry for far more years than I'd care to admit but here is what I would recommend.

Don't get a pre-approval unless you are ready to buy in the next 3 months or so or are actively looking. The reason being is they pull a full credit report which is only valid for a short(ish) period of time (it's been awhile but think might still be 90 days). If that credit report expires then a new one will have to be pulled and every now and then stuff pops up that kills borrower's ability to qualify for the mortgage.

Do these things to get ready for the next year or so:

1. Have a full credit report pulled (all 3 bureaus) with credit scores (creditors look at all of them and take the score in the middle typically between the 3 for rate determination)
2. Determine if you need to strengthen your credit in any way (raise score, reduce debt, get rid of collections if you have any or clean erroneous items on the report that might be detrimental, etc).
3. For mortgages, they look at monthly DTI ratio in the calculation to determine how much you qualify for so:
a. Total monthly debts (revolving minimum payment, secured debt like car loans, student loans etc)
b. So for example, say you make $4k/month (gross) and you have about $1000 in monthly debt obligations (say a car loan(s), 1 min credit car payment and some student loans for example) then:

$1k / $5k = 20% DTI per month

When I used to work in mortgages the max DTI that lenders looked at was 45% DTI including mortgage payment and the rest of the income was considered disposable (for other things such as cell phone, groceries, car insurance, that you owe per month but not technically a "debt", etc). So based on scenario 3b numbers, you theoretically could qualify for a mortgage payment of $1250 (0.45x$4k - 1k debt if your doing the math). That number includes escrow (taxes, insurance and mortgage insurance if any).

I'd recommend self-policing yourself to 38% total DTI instead because realistically, the DTI limit is based on Gross not Net income and could make for very tight budgeting if you go to the extreme limit. So, based on our example numbers the recommended payment (my recommendation) is $900/month.

Also, if you are first time homebuyers (in most states it means you have not owned a home or had a mortgage in the past 3 years) you could qualify for special programs that allow for special fixed rates and a grant for down-payment assistance. It is in the form of a forgivable loan though so if you ever refinance or sell the home before the grace period is up you'll have to pay that money back (in my state, MN it is 7 years).

Lender's also typically require a least 3 months reserves of your total debt (including new proposed mortgage) in assets in case of emergencies like you lose your job and can show you can make your loan payments until you find a new job (for example). So say you have that $1k debt and a $900 mortgage that is $1900x3 = $5700 in monetary assets. Assets can be what is in savings and also retirement accounts for reserves (401k, IRA, etc). They must be vested for at least 3 months, so no large deposits showing up on your bank statements the same month of your most recent bank statement provided. They will follow the paper trail for anything that looks out of the ordinary (because of money laundering laws and for the looked of overseas activity so as not to fund criminal activity or such). So, if you are planning on receiving gift money from family or something (aka mattress money or say you had a lucky day at the casino) do it at least 6 months prior to applying for a mortgage or it will create additional hurdles to jump.

Also, if you are renting (assuming you are) make sure your payment history is clean for the last 12 months prior to loan application. They will ask for a VOR (verification of rent). If you rent from apartment complexes or such then there is a form that the rental office will can fill out the form (which will be sent directly from the lender to them). Or, if you have a private party (i.e. renting from a family memer or some guy who has an investment property) you'll need cancelled checks for those 12 months to show a clean payment history.

That is the cliff notes version I'd recommend.
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Re: Mortgage Pre approval questions [dbikelink] [ In reply to ]
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This information is 5 years old, so it might have changed a little

We were in the market for a home purchase. We had last owned a home 15 years before and due to several factors had never bought another one. After 15 years, 3 changes of jobs and residences, and landing in a state we had never lived in before, we might as well be a first time home buyer.

The first agent would not meet with us or discuss anything until we were pre-approved. It turned out that was her policy, not a rule, put a pretty common way of doing things here. We originally were pre-approved through Lending Tree over the phone. They faxed the pre-approval to me a day later. That got us started. A few weeks later we were in the bank moving some money around (a large amount) and the manager asked what we were doing. We told him we were interested in a couple of houses and we wanted to have the surety money in a liquid account so we could move quickly. At the time, in this area, there were more buyers than houses (not underwater) and we were afraid we would be undercut. The manager asked if who we were pre-approved through and went it wasn't them (Chase) he asked if they could have a chance. Chase provided the pre-approval document in 20 minutes. After we talked about it we decided that the difference between Lending Tree and Chase (our local bank) was minimal. We canceled our account with Lending Tree and went with Chase from that point on.

It turned out that things didn't go as well as we had thought. The pre-approval was re-done 4 times in 7 months. Every time it was to change the approval amount. Our realtor told us, and the loan officer agreed, that the pre-approval should be for what you want to spend plus about 10%, not what you can afford. You don't want to negotiate with the seller and they know you can easily afford what they are asking. Every time we looked at a house and showed any interest the seller agent asked if we were pre-approved and for what amount.

Once we signed a contract we started the actual loan process. My loan was backed by the VA, and Chase has a special department that only does VA loans. As far as I know the 4 changes to the pre-approval had no impact on my credit, which was very good.

We signed final contracts and paid the surety on 6/12/12. We were formally approved for the loan on 7/30/12. We didn't lock in a rate until 8/18/12. The seller requested to close on 8/28/12 the day before and Chase had no problems being ready to go.

"...the street finds its own uses for things"
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Re: Mortgage Pre approval questions [dbikelink] [ In reply to ]
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Just bought last June.

We got pre-approved as soon as we started seriously looking. For us is took a week or so and they needed some of the stuff that they would also need for the mortgage, tax returns, check stubs and financial statement.

We were told to not get pre-approved until you were ready to serious look and buy.

If something popped up that you wanted and you had nothing you do take the chance of the seller rejecting your offer because you are not pre-approved. Not sure how that would work.

I have no idea what continually getting pre-approved does to your credit. I think our pre-approval lasted for 90 days.

~Matt
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Re: Mortgage Pre approval questions [dbikelink] [ In reply to ]
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Pre-approval isn't that big of a deal, should be an easy phone call and exchange of a bit of information. Mortgage process is another game altogether.

Are you planning on having 20% down? If not, are you going to go with an FHA loan?
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Re: Mortgage Pre approval questions [dbikelink] [ In reply to ]
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Frankly you're getting some good advice so I'm not going to try and restate everything, but I do want to give you a few more things to consider. Full disclosure, I'm a mortgage banker in Texas.

As far as credit goes, pulling it one time will not affect your score - that's a common misconception, but you'll only see score loss if you have it pulled numerous times in a short period of time, say 3-5 times in a month. Even then, it's usually not enough to see a dramatic drop unless there's something going on besides just pulling credit (new accounts, for example).

With that said, if you're seriously considering buying a house over the next year BUT you'd also like the flexibility to be ready now in case something comes available, I would suggest meeting with a loan officer to figure out where you are financially and make sure you're ready and if not, what you need to do to get ready. They should be able to pull your credit now, match up your income and your debts, and set realistic expectations for how much house you should be looking at when the time comes.
This is the basic premise behind a pre-approval or a pre-qualification and assuming nothing changes after you go through this process, that prequal should be good for quite a while. In some cases it makes sense to gather documents to verify information IF there is a question about something, but if you're a salaried employee with W-2 income and simple tax returns it's pretty easy to run numbers based on those figures. If you're self-employed it's a different story though.

Loxx is right in that credit reports expire after 90 days, but assuming you didn't buy a car or have derogatory items hit your credit after it's pulled your situation is still the same. If your credit is good now there should be no need to repull it just to update a preapproval every 90 days. If there are issues on your credit that prevent you from getting a loan, the loan officer should be putting a plan in place to help you get those issues resolved. In that case it would be prudent to repull at some point to make sure those things are taken care of so that you're ready to buy when the time comes. One thing to consider about online credit reports versus a full report is, I have seen wild swings (100 points or more) between some of the online reports and what we pull. A mortgage-enhanced credit report is much more thorough and accurate, where creditkarma and freecreditreport.com generally take a very shallow look that often has their scores come in much higher.

Sorry if this is a little more than you were looking for, but you should be able to do exactly what you want to do provided you find a loan officer that's willing to work for you. In my experience you aren't going to find this at a big national bank, and if you don't feel comfortable with the people you find don't give them your information. They should be willing to discuss your situation BEFORE pulling credit, and set the expectations for what the process will look like moving forward.
If you'd like to discuss this further shoot me a PM with your contact info and I'd be happy to reach out to you.
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Re: Mortgage Pre approval questions [dbikelink] [ In reply to ]
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You didn't ask, but I would add that it makes sense to shop around. Make sure you ask the lenders how long it takes to close. Some banks are very difficult to work with and will make it hard to close. Some make it difficult to talk to a live person

Ask friends who they got their mortgage through
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