Buying a first home is an exciting time but sometimes can get complicated if you are not prepared. The last thing you want is to lose out on your dream home because your loan was denied. To make the process easier and to avoid any surprises, it’s helpful to understand a few basics of the home loan process before starting on the home-buying journey.
Many lenders recommend applying for pre-approval before starting the search for a new home. While it may seem odd to apply for a loan before a property to purchase is found, it can be advantageous as it is one way to potentially beat out tough competition during a competitive buying market.
Once you are pre-approved, a financial institution will issue a loan commitment subject to you finding the perfect home. You can then use the pre-approval letter to assure real estate agents and sellers that you are a qualified buyer. Having a pre-approval for a mortgage may give more weight to any offer to purchase that you make.
Because a pre-approval can be so valuable, you should be careful not to lose your approval status by making significant changes to your finances before the loan is finalized. When you are pre-approved for a home loan, the pre-approval is based on your finances at that time. The pre-approval is usually good for 90 days as long as your financial status stays the same. If your financial status changes for example by increasing your credit card debt, opening a new credit card, or changing your employment/income status, let your lender know as soon as possible. These changes could affect the amount of money a financial institution is willing to lend you.
Other changes to disclose to your lender are large deposits or changes to your down payment. It is not only important to disclose the amount of your down payment, but also where those funds are coming from. While gifts are an acceptable source of the down payment, there are stipulations and not all gifts are eligible. Any gifts or large deposits will need to be properly documented by your lender to ensure a smooth loan approval.
To keep the loan process moving quickly, you also should provide any requested documentation to your lender promptly. The more prepared and efficient you can be with providing financial information and documents to your lender, the quicker the loan approval process will go.
With a little bit of background knowledge, you should feel confident about the loan process; however, it is important to find a lender you trust. You should work with a lender that you feel comfortable asking questions and who will take the time to explain the entire process. Your banker should be your ally in this process.
Wendy Hollenbeck is a mortgage banker with Security Financial Bank. The Chippewa Valley Home Builders Association is a free resource available to all homeowners building or remodeling a home. For more information please call 715-835-2526 or email firstname.lastname@example.org.