Pre-Approval: What It Means, and Why It s CRITICAL To Today s Home Buyer

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1 Pre-Approval: What It Means, and Why It s CRITICAL To Today s Home Buyer This Free Report Provided by:

2 This Free Report Provided By: Company NMLS ID # 1591 ( AL 20934; AR 32094; AZ ; CA , Licensed by the Department of Business Oversight under Churchill Mortgage Corporation, which will do business in California as Churchill Mortgage Home Loans; CO Mortgage Company Registration, Churchill Mortgage Corporation, 761 Old Hickory Blvd. Ste 400, Brentwood, TN 37027, Tel , Regulated by the Division of Real Estate; DC MLB1591; FL MLD225 & MLD1264; GA 23146; ID-MBL-8038; IL MB , Illinois Residential Mortgage Licensee, Department of Financial and Professional Regulation; IN & 10931; IA ; KS-MC , Kansas Licensed Mortgage Company; KY MC19522; LA- Residential Mortgage Lending License; MD 18840; MI-FR & SR ; MO A, 435 Nichols Road, Ste 200, Kansas City, Missouri ; MN-MN-MO-1591; MS 1591, Licensed by the Mississippi Department of Banking and Consumer Finance; NE 2037; NM 03780; NC L ; OH-MBMB & SM ; OK MB & ML002574; OR-ML-5134; PA-41761, Licensed by the PA Department of Banking and Securities under Churchill Mortgage Home Loans; SC MLS 1591; TN ; TX Mortgage Banker Branch Registration, 761 Old Hickory Blvd. Ste 400, Brentwood, TN 37027; VA MC-5222, Churchill Mortgage Corporation of TN; WA CL-1591; WI-1591BA & 1591BR; WY ; Tel

3 What does Pre-Approved Mean, and Why is it Important? A Pre-Approval guarantees you currently meet the requirements for a specific loan amount even before you begin home shopping. Once you have our Pre-Approval letter, you can shop for your dream home with the confidence you have already been pre-approved for the loan. Here s why having a Pre-Approval Letter is so important to: The Seller: If a Seller accepts your offer, most states require the Seller s agent to notate the home is pending or under contract and this varies from state to state. Once that comment is in the listing, most home buyers will pass over a pending home to keep from wasting their time. If the buyer ends up not being fully approved for the loan, the Seller has lost all that time of marketing their home to potential buyers. Seller s Agent: The Seller s agent knows when buyers are not Pre-Approved, their key income, assets, and credit have not been reviewed by an Underwriter. To protect their Seller, the agent will often require a Pre-Approval letter before entertaining an offer. Buyer s Agent: Experienced Buyer s Agents will normally require buyers to get Pre-Approved by a trusted lender before they start looking for homes. The Buyer s agent wants to protect their customers from the disappointment and embarrassment of making an offer, getting their hopes up, and then discovering they have an unknown issue that hinders them from being approved.

4 Pre-Approval vs. Pre-Qualification Only an underwriter can Pre-Approve you for financing, but any Loan Officer can say you re Pre-Qualified. We often get calls from potential homebuyers who were Pre-Qualified to purchase a home with another lender only to find out when it went to their underwriter, they were denied. This is after they have invested weeks or even months of their time and effort into finding just the right home, all wasted as they watch their dream home get sold to someone else while they work on becoming approvable for a loan. How can this happen? Often the Pre-Qualification process is performed based on information you provide, not a verification of your income or assets. While that may seem quick and easy, the reality is your supporting documentation holds a wealth of information that can affect whether or not you will actually be approved for financing in the amount needed. Since the ultimate decision maker (the underwriter) has not reviewed your information, a Pre-Qualification does not mean you will be credit approved for financing. A Pre-Approval on the other hand, means you have been credit qualified by an actual underwriter, the person who approves financing. They have fully reviewed your credit, income and assets and conditionally approved you for financing on a new home loan, typically subject to the contract, property appraisal and other property related items. The pre-approval will be subject to no material changes in your financial condition, creditworthiness or purpose for the loan prior to closing. Going through the pre-approval process helps catch many of the hiccups early on to prevent issues from arising at the last minute. This also means you have done the bulk of the leg work up front, making the process much more quick and smooth once you have found a property. A full pre-approval gives you, and most importantly the seller of the home you wish to buy, the peace of mind that you can financially follow through with the offer to purchase their home. How Do You Get Your Own Pre-Approval Letter? It takes 3 simple steps to get a written Pre-Approval Letter: 1) Speak with a Home Loan Specialist from Churchill Mortgage to determine your desired loan program. 2) Return the signed application disclosures with supporting documentation for underwriter review. 3) Then, receive your written Pre-Approval Letter! Once your documentation has been reviewed and deemed acceptable, a conditional pre-approval letter will be provided. Pay particular attention to any conditions outlined in this letter. This pre-approval is not a commitment to lend funds but a conditional approval of your loan application subject to all the conditions listed, final underwriting approval and final investor approval. What steps did you eliminate? 1) No need to have specific information on the property. 2) No need to pay for an appraisal up-front 3) No need to nervously wait for weeks to find out if you qualify!

5 The Home Buying Process To help you understand this process, we will start by giving you an example of the steps involved in buying a home and applying for a home loan using the TRADITIONAL APPROACH. For this example, we ll say you currently own a home but would like to move up to a larger home in a different community. First, you ll most likely spend weeks searching the internet, talking to friends and looking through newspapers and magazines until you find a neighborhood that appeals to you. Second, you ll eventually drive around those neighborhoods that look interesting just to get a feel for what they re really like. Third, you ll begin to go to open houses to get an inside look at the homes in those neighborhoods. Fourth, you ll begin working with a Realtor to find other homes that are available in this area in your price range.

6 Fifth, finally, after countless hours of searching, going to open houses, calling on ads, driving around different neighborhoods, finding out about the areas, the amenities, the school districts, the shopping facilities, you eventually find a home that you love and decide to buy. Sixth, once you find that home, the next step is to draft an offer to purchase to the seller. This is where the expertise of your Realtor comes to your aid. A professional Realtor will know exactly how to draft the offer you want to make and what clauses to include in the purchase contract to protect your interests and your deposit. Once your offer has been submitted to the seller, you simply wait for an answer. Now the only things that stand between you and your dream home are: (1) the seller s acceptance of your offer and (2) being approved for the loan. By this time your Realtor has instructed you to contact a lender to begin the loan application process, you ve met with a Loan Officer, and you ve completed a loan application. What is involved in the loan application process? Let s look at the sequence of events when you apply for a loan, and what lenders look for in a borrower. The Traditional Loan Application Process Remember, in this scenario, you ve only received a cursory Pre-Qualification and your entire transaction depends on your being formally approved for the loan. If you can t get this loan, you can t buy the home... period! Here are the steps you will likely take in applying for your loan: Step 1. Initially you ll meet with a Loan Officer who will ask you to complete a Residential Loan Application. Many lenders may require an application fee at this time and a check to cover the cost of your credit report and appraisal. Step 2. The Loan Officer will request a series of documents to support your income, your savings, and your expenses (i.e., W 2 s, pay stubs, bank statements, list of outstanding debts). Step 3. The Loan Officer will then begin processing your application. At this time the lender will order an appraisal of the home and a copy of your current credit report. The lender will make written requests to verify your employment and bank account balances.

7 Step 4. Within 3 days of completing your application, the lender will provide you with a Good Faith Estimate of closing costs and a booklet containing information about the closing costs you may incur in the transaction. Step 5. Once the lender receives your credit report, appraisal, and all the written verification requests, your loan package will be submitted to the underwriting department. They will evaluate your loan package and either approve, deny, or suspend your loan for further documentation. What Lenders Look For In Borrowers In the mortgage lending business, there is a rule-ofthumb called the 4 C s credit, capacity, collateral, and character, qualities lenders want to see when they consider a loan. Let s go over these in detail. Credit: A lender wants to determine that you are a good credit risk by seeing your current credit picture a snap-shot of your past and present debt, current available credit, and a rating of your debt repayment history. Capacity: This is simply a measure of your financial capacity to have this loan. This is measured by dividing your gross monthly income by your total outstanding debts (including the new payment on the home you re planning to buy). Generally, lenders will allow 40% of your monthly income to be used for your housing expense and all other current obligations you have outstanding (including credit cards, auto loans, student loans, etc.) Collateral: This is nothing more than the current market value of the property you re about to buy. The lender needs to know the value of the property you are pledging as collateral for the loan in case of default. Character: Character is a catch-all phrase that is basically an underwriter s subjective determination of your over-all financial picture. Generally, to determine character, they look at your job stability, your probability of continued employment, and your ability to save money.

8 Let s Take A Moment Here To Summarize The Entire Traditional Process First, you ve spent many hours of your time, money, and effort to locate the perfect home in the perfect neighborhood for you and your family. Second, you ve consulted a Realtor and drafted an offer that is within the terms you believe are fair. Third, you ve submitted a written offer to the seller and are awaiting their response. Fourth, you ve met with a Loan Officer, filled out a multitude of paperwork, forms, and applications, and provided full documentation to support your income. Fifth, you are now awaiting a yes or no answer from the lender. After all of this effort, there is still a chance you won t get the home of your dreams because your loan may be TURNED DOWN that is, if you use the traditional approach.

9 Imagine for a moment that you were already pre-approved for the loan IN ADVANCE before you initially drafted your offer. And you had a Pre-Approval Letter to include with your offer. This Pre-Approval Letter actually gives the seller confidence that you qualify for the loan and compels them to respond to your offer immediately. You will have eliminated one of the two major obstacles to owning your dream home: Your approval for the loan. Smart buyers who learn this get their Pre-Approval at the start so they have confidence when writing an offer to purchase their dream home. To review: What your Pre-Approval gives that a Pre-Qualification doesn t: 1) It gives you a WRITTEN PRE-APPROVAL from a lender for a SPECIFIC LOAN AMOUNT so you know exactly which homes and price range to include in your search. 2) It gives you the PEACE-OF-MIND to know that your loan approval WILL NOT be an obstacle in buying your home. 3) It gives your offer MAXIMUM CREDIBILITY and shows the seller that you are serious about buying because you ve taken the time to get Pre-Approved. (If the sellers received multiple offers, which one do you think would catch their attention?) 4) It greatly reduces if not ELIMINATES THE POSSIBILITY of losing the home due to set backs that may be discovered during the loan process. Some of these setbacks include finding incorrect data on your credit report, etc. The time it takes to correct these issues could cause you to lose the house if they have not been taken care of through a pre-approval process.

10 Next Step Take the first step and call us today and we will guide you through the process of receiving your Pre-Approval Letter. You can also visit our website and fill out the Pre-Approval form by clicking APPLY NOW. We look forward to serving you!