If you wanted to buy a house twenty-five years ago, you would have called your lender and asked for a prequalification letter. You would have told him/her your annual income and how much cash you had for a down payment
“Those days are long gone,” says Dan Avanzato, President of Norstar Mortgage Services in North Wales, Pennsylvania, and a thirty-year veteran of the mortgage industry.
According to Avanzato, a prequalification is not the same as a preapproval. The prequalification is used as a tool to determine whether or not a lender would likely approve a borrower for a mortgage based upon their credit, current income, monthly expenses and employment. However, a preapproval requires the loan application to be reviewed by an underwriter, who will in turn issue a loan commitment once all of the conditions are met.
“In fact, in today’s lending environment, we don’t even consider issuing a preapproval letter until we’ve completed the following steps,” he said. These include:
- Running a full credit report (which Norstar does at no cost and shares it with the borrower)
- Completing a full mortgage application
- Reviewing current paystubs for the last 30 days
Avanzato also added that he’s not sure how any reputable lender would be able to issue a prequalification without having this information at a minimum. “Years ago, someone could tell you they made $85,000 a year and you would take their word for it,” he said. “Today, they may have a salary of $85,000, but if they deduct $15,000 in business expenses on their tax return, guess what? As far as the lender is concerned, they only earn $70,000.”
When you’re shopping for a lender, Avanzato advises to keep a couple of things in mind. Don’t give out any personal information online just to get a rate quote. You really don’t want each and every lender that you interview running your credit, which could possible have an adverse effect on your credit score. Also, make sure the lender that you decide to work with has experience originating loans in your state. It’s not your job to educate the lender as to which fees are customary in your area. With over 10,000 mortgage brokers and banks in Pennsylvania alone, you shouldn’t need to search too hard to find a good local lender.
If you follow this blog, you know that education is key when buying a home. First, figure out what you’re comfortable spending each month. Then, try to determine how long you plan on staying in the house; this will help you find the loan type and term that fits your personal needs. Once you answer those big questions, the rest should fall into place rather easily.
Click here to see current mortgage rates from Norstar Mortgage Services, as well as other local banks and lenders.