Just an update: we were only "prequalified" for a 3% down, fha loan...no word on interest rate yet. He said our credit for the last 2 years, which I believe fha is only concerned with, was great....only 1 thing I need to explain which is a duplicate account and he said the mortgage person spotted that. The realtor we're dealing with seems to be a nice guy. I asked him about being preapproved before we start looking for a home. He told us that we should find the property first, and then the preapproval process gets started. This seems to make sense but I wanted someone with a little more experience to give more information on this.
Why preapproval should come before finding a piece of property: The real estate market has slowed down slightly since last year, but it is very hard to find a nice, quality home (I know this because it took me a 1-1/2 year to find one). There can sometimes be 3-5 people/couples putting a contract on the same home. The one who is already preapproved (and offers the highest bid) wins, because not being preapproved is a contigency to the seller. They may accept your contract without you being preapproved, you go for a loan and don't qualify. The seller has since taken the home off the market waiting for your loan approval. If you don't get the loan you have not only wasted the seller's time, but your own. You probably will have no problem being approved for a loan, but I was just referring to people in general. With a preapproval you have guaranteed financing (if all variables stay the same). Dani PS Also, preapproval gives you an idea of the amount of home you can afford. So if you're preapproved for $175,000 you don't have to waste your time looking at $300,000 homes. Prequalification is only a guess of what you can afford.
Dani is right, do not go house hunting until they provide you with a pre-approval letter. That letter will spell out the amount you can buy, any contingencies, and what rate and points you will have to pay. Then you will know exactly what to look for and not look at. If they are telling you standard practice is not to do a pre-approval until you have found a home, get a different mortgage person. Tell him the term "pre" means just that, approval prior to finding the home. You won't be taken serious by a seller without it and depending on where you live, some real estate agents won't even waste their time showing you a home until you have a pre-approval to show them. They don't want to take you all over town looking at homes when they don't know if you qualify or not.
What's strange is the realtor we're dealing with seems to be working hard to help us out. He sends me listings of homes everyday and keeps in touch with us. We've looked at two homes already. It's confusing because why would he put effort into this when there is a chance he won't make the sell if we aren't approved? I'm getting so many mixed messages about this that I'm more confused than I was before I got started.
It depends on where you live and the realtor. He may not be experienced or the market you are in is not as hot as other areas. In my area, if a home is listed more than 30 days there is something wrong with it or it is not fairly priced. There are more buyers than sellers so the realtors are very choosy about who they spend their time with because it will take away time from someone capable of buying. The pre-approval is not just for the realtor, it is a big help to you also. You will know how much you are approved for, what the rate is, what closing costs you will pay or points you may have to pay, how much you need to put down, and any other documentation you may have to come up with. You don't want to waste time looking at homes you may not be qualified for, do you? Get piece of mind and get the pre-approval letter.
steff45 , What qualifications did it take for you to get fha loan? And do you know how they determine your APR rate on the loan? (By credit or other factors) What was your credit score? Do you a have any charge offs? If so did they make you pay them off before getting pre-approved? I am looking to apply for the fha loan in about a year, because I will be a 1st time buyer. I am considering a fha loan instead of a conventional loan because I could put 3% down.
Hey tt - Maybe my situation can help you out. I'm looking to buy my first house as well. Talked to a mortgager this week and she loved the scores,she told me "You're in the 600's so don't worry about it". FHA doesn't really pay attention to scores, rather payment history for the past 2 years. I have a paid charge off from 2/97 and a paid collection (Hopefully not for long) from 3/99 yet that didn't seem to bother them. Last derog was from 12/99. My debt to income was 20% and 41% (With the mortgage payment added). Hope this helps...
