The need for loan approval

When you begin the process of purchasing a home, the first step is to see a lender and get a letter of pre-approval. This pre-approval letter will be granted only after the lender has run a credit report and asked you for various documents including tax documents for the previous two years, a list of loans which you might have, and paycheck stubs to document your employment and pay.  

This loan pre-approval serves several needs. Firstly it indicates the ceiling of the loan for which you are applying. You and your agent will not waste time looking at homes which are out of your price range, nor will you be looking at homes which are far beneath your price range. If you qualify for a higher amount but wish to stay within a lower price range, your agent should honor your request and stay within that price limit when showing you homes. 

The loan pre-approval is a part of the negotiating tools that your agent will use in your behalf. Submitting an offer to a seller with a loan approval is a far stronger offer than an offer without loan pre-approval. Put yourself in the shoes of the seller; do you want to sell a home to a person without pre-approval, or would you take less money knowing the buyer has approval and a firm closing date?

 The loan pre-approval means that you are a serious buyer. You have taken the first step in purchasing a home. If you do not have a lender, your agent can recommend lenders with whom you can speak. 

Once you have received loan pre-approval, it is important to provide your lender the documentation he or she requests in a timely manner. The loan must be processed and then be underwritten. These are different departments. 

The processing department must order appraisals, title work, verify employment and funds, among other things. The underwriter must make sure that your loan meets the requirements for the particular loan program you are using. Then this information goes to the closing department where the deed of trust and other documents are prepared and then the package is sent to the title company.

It is the title company and the escrow officer who will sit with you and your agent at the close of escrow and have you sign these documents. (Arizona is a title company state and attorneys are generally not used in the purchase of real estate; real estate agents have been granted some of the powers attorneys have in other state.) Your getting these documents to the lender is the first in a long process that involves many people. Problems with loans often can be traced to buyers not submitting the necessary items in a timely manner. 

When you are purchasing a home and going through the loan process, do not to purchase any major items including appliances, cars, or take on additional debt. Small debt can throw off the ratios used by the lender to grant your loan, and you may suddenly find you no longer qualify for the loan. 

If you receive money and put this money into your account, or if you transfer money from one account to another, it is important to have a paper audit trail. If you are being gifted money to help you purchase a home, often your lender will ask for a “gift letter”. Documentation of the funds from the gift giver will be necessary.  

The lender is part of the team of professionals helping you to purchase a home. Provide those things he/she requests and your loan will proceed in a smooth manner.