Loan Pre-Approval

By the time you have gone past the preceding stage of Pre-qualification for loan, and you havearranged the moneyyou’dneed to close tobuying a home,you are entering this stage of getting Loan Pre-approval from your bank or mortgage broker. It is generally pre-underwritten by the bank or the mortgage broker who is ready to commit to fund the loan when purchase contract is given. It is like having a bank on your side to go a buy your home.

Your realtor will always ask you to obtain Pre-Approval Letter from bank or mortgage broker to enable you to support your offer to the seller for purchase of a listed property. This Pre-Approval Letter is always conditional for a certain number of days and your loan worthiness. If your situation changes, or you decide to borrow money elsewhere during the critical days of your home purchase, you may run into review of underwriting by the lender of loan. Ensure that your credit is not affected during days of your shopping to buy a home for yourself.

Loan Programs

Familiarize yourself with the types of loans that are typically available.

The power of leverage to purchase a real estate property lies in the capacity of the potential borrower. Typically, the borrowers fall in four categories of buyers of residential properties:

• Principal Residence
• Second Homes
• Investment Property
• Cash-out borrowers

Lenders qualify potential borrows based on capacity of the borrower to payback loan over long period of time for the associated property having qualifying market value as collateral on which mortgage for the loan is placed.

It is the large social objective of the government that homeownership and expansion of investment dwelling units is encouraged to meet ever growing demand to improve the standard and quality of life of people. The flow of money is regulated through banks and investment companies from primary consumer market to secondary market that purchases loans and circulate money back into the economy.

Two big buyers of loan papers from banks are the two government sponsored enterprises (GSE) based on their underwriting guidelines:

• Fannie Mae or Federal National Mortgage Association. (FNMA), and
• Freddie Mac or Federal Home Loan Mortgage Corporation (FHLMC).

Fannie Mae buys loan papers from larger commercial banks and lenders, whereas Freddie Mac often buys loans from smaller banks. Together, they control about 70% of housing financial industry in the nation and significantly stabilize the housing market.

In addition to above loans, there are government insured/guaranteed loans available:

• FHA Loans: These loans are 3.5% down government insured. There is insurance cost upfront on buyer thrown into the loan for the buyer, and recurring insurance premium till principal balance drops to 78%.
• USDA Loan: These loans are made available in specified rural areas for low-income borrowers.
• VA Loans: These loans are for the active members of U.S. military and veterans and their families. There is no down payment. There are funding fees on closing rolled into loan. These loans are guaranteed 100% by U.S. government.

The loan products and their underwriting guidelines are regulated by law. Depending upon the type of borrower you are, it is best that you engage services of an established and experienced loan company, define what you are looking for, and how well you canqualify for the loan to suit your purpose. Conventional loans are available from as low as 3% down.