In today’s housing market it is imperative to start off your quest for your dream home with a pre-approval from a legitimate lender.

Most lenders can pre-qualify you for a mortgage over the phone. Based on general questions about your income, debt, assets and credit history, lenders can estimate how large a mortgage for which you qualify. However, being pre-qualified and pre-approved are different things. Pre-approval means that you have applied for a mortgage; have filled out the mortgage application, received your credit report and verified your employment, assets, etc. When you are pre-approved you know exactly what your maximum loan amount can be. Armed with this knowledge, you will be able to determine what monthly payments you are comfortable with and then begin to look for homes in the appropriate price range.

A pre-qualified letter is not verified and in essence, does not count for much if you are competing with other buyers who are pre-approved. When you are pre-approved, both you and the seller know exactly how much house you can afford. It gives you credibility as an interested buyer and lets the seller know immediately that you qualify for a loan to buy his property.

In addition to being pre-approved, its important to be pre-approved with a legitimate lender. A legitimate lender is one who is known within the community and to one or both realtors involved in the transaction, and one who has a documented record of experience, service and the ability to close the transaction with a minimum of delays or problems. As with realtors, there are varying degrees of competence amongst lenders. Recently many new mortgage brokers have come on the scene. Many seem to offer low interest rates, however it is important to know and understand all of the costs associated with obtaining your new mortgage. ***It is important to note that there are no regulatory agencies which require lenders to become licensed*** It is recommended that you get a second or even a third opinion when selecting a lender.

Ask your Realtor to recommend several legitimate lenders to you.

Questions for your Lender(s)

• How long have you been a lender?
• Are both fixed-rate and adjustable mortgage loans available?
• What is the interest rate?
• How long can I “lock in” the financing at the current interest rate?
• Is a float down lock available in case rates drop after I have locked in?
• What are the other fees a lender may charge me in conjunction with my loan?
• Are funds for a second mortgage still available?

• How often will the interest rate be adjusted?
• Is there a maximum limit on each rate change?
• How often will the monthly payment be adjusted?
• Is there a ceiling on payment adjustments?
• Can the term of the loan be extended?
• What is the maximum rate that can be charged over the life of the loan?
• Is there any potential for negative amortization?
  
  

Is there a pre-payment penalty clause? This involves extra charges for paying off the loan before maturity. Note: About 80% of all loans in the United States are paid off early.

What is the “grace” period? How late can a monthly payment be made before a late charge is assessed? What will happen if a payment is missed?

If you sell your house, will the new buyer (if he/she qualifies) be able to assume your mortgage at the same interest rate?

Do you have to pay “points” to get your new mortgage? Usually lenders charge points for the cost of giving you a mortgage loan. A “point” is 1% of the loan.

Will the lender require mortgage insurance?

Is the loan serviced locally or is the servicing sold?

Ask for a written “good faith estimate.”