05 Sep Texas Mortgage Loan Pre-Approval
What is a Mortgage
Pre-approval for a mortgage loan is exactly that: You have completed a loan application with your lender and the lender has approved the amount of money you want to borrow. This can (and should) be done before you go out and look at houses. The pre-approval is not a guarantee that they will loan you the money – that comes after they have evaluated the property you want to buy and feel that the home is worth the money they are lending to you.
But getting pre-approved makes the whole purchase transaction go more smoothly, because – when you find the right property – the loan application is done and all that is left is to give the lender the details about the place you want to buy. The lender will evaluate the property and approve it; at the end of the escrow period, they will finalize the loan and give the money you are borrowing to the seller.
Some people confuse this with a mortgage loan pre-qualification letter – don’t do it! Compared to a loan pre-approval, a pre-qualification letter is relatively useless. It reflects what you have told the bank about your ability to borrow money, but it does not reflect what the bank finds when they verify the information you gave them. At the point that the information is verified and found to be active, you are pre-approved for the loan.
Typical Texas Lender
The loan approval process is made up of four major parts. The first three are your responsibility, while the final one falls on the lender.
CAPITAL: The amount of cash you can pay upfront to make a down payment so that you are putting a little skin in the game. The lender puts a lot of skin in the game, and they want you to show good faith by pitching in.
CAPACITY: This refers to your ability to make the monthly payments. No matter how much you pay as a down payment, the lender wants to know that you have enough monthly income to comfortably make your monthly house payments.
CREDIT: A good credit report is the key to everything; if you have a history of paying your bills on time, the lender is more likely to trust you to pay your monthly bill for the mortgage. In addition to that, they will probably offer you better interest rates if you have good credit.
COLLATERAL: This you have no control over – the property you are buying is the collateral for the loan, meaning that if you default on the mortgage, the lender ends up owning your house. Before final approval of the loan, the lender will verify that the house is something that will be valuable to them in case they have to sell it to recover their losses.
Benefits of Bank
As long as you are serious about making a real estate purchase, there is little downside to getting a pre-approval for your mortgage loan. Not only does it help speed up the real estate transaction, but it benefits everyone involved in the transaction (which makes everyone that much happier to help you get through the closing).
What Mortgage Pre-Approval Means For the Buyer
When the decision is made to buy a house or office, many buyers have a good idea of what they want and what they can afford. However, the reality may be quite a bit different. It is a great idea to know what you want – how many bedrooms, how many bathrooms, and the size of the back yard you want; it is just as important to know exactly the highest price you can afford. If you don’t have this information, you may waste your time looking at properties you cannot afford.
Getting a pre-approval from your lender answers this question for you, but there are other good reasons to get the pre-approval done before you house-hunt. With a pre-approval, the bank does a credit check; if you get the pre-approval, that means that you have passed the credit check and can breathe easier about the process.
Along with the pre-approval comes a breakdown of your monthly mortgage payment, if you borrow the maximum amount. Of course, if you buy a cheaper house, the lender adjusts your loan accordingly.
The final, and maybe the most important, benefit you receive is knowing the worst-case scenario of the amount of cash you will need at closing. Good time to factor in the costs of moving and incidentals immediately after the closing, so you have a solid plan going into the real estate deal.
Your Realtor® can recommend respected lenders in and around San Antonio and support you through the process of obtaining a pre-approval for your mortgage loan. Some real estate agents - representing you or the seller - expect you to have a pre-approval in place before they invest the time to arrange for you to see houses and to entertain an offer to purchase.
What Mortgage Pre-Approval Means For the Real Estate Agents
Some real estate agents – representing either buyer or seller – request that the buyer provide a copy of their lender’s pre-approval letter (not a pre-qualification letter) at the outset. Even if it is not requested, letting your realtor® know that you have a pre-approval will reassure your realtor® and the seller’s agent that the time they invest in arranging showings and preparing or responding to a written offer to purchase is time well spent.
Otherwise, an agent may spend several days with a buyer showing them a lot of houses that are on the market, do all of the paperwork to put together the written offer, and involve the seller’s agent – only to find that you can’t qualify for a mortgage loan to actually buy the property. Reassuring the real estate agents that you can afford to buy once you find a house is good for them and good for you.
What Mortgage Pre-Approval Means For the Seller
When you list your house or other property for sale, it is natural to hope for a written offer from a buyer during the first few days the home is on the market. The longer it takes, the more nerve-wracking it is for the seller – especially if they have a tight timeframe. If they must relocate, and have to sell this house so they have the money to buy another one in the new location, and they have to be on the job and/or have children in their new school by a specific date, the seller may lose some sleep sweating it out.
If they receive an offer and negotiate with the buyer in good faith, it would be devastating to get into the escrow period and find that the buyer cannot come up with the money or mortgage loan to complete the sale. It means they have to start all over and may have missed out on a legitimate buyer while the house was listed as “under contract” (and therefore not available). Demonstrating that you can close the deal is an important factor that may help the seller to be more agreeable about the negotiations.
What Mortgage Pre-Approval Means For the Lender
When a you go to a lender for pre-approval before looking at houses for sale, you have the opportunity to develop a relationship with the lender that will help complete the transaction with minimal hiccups. Loan officers interact with real estate agents every day, and they understand what your agent needs from them, as well as what the seller’s agent will need. The lender will verify all of the information you give them, and then provide you with confirmation that you have met all of the requirements and are good to go – for property listed at or below the amount they pre-approve for the loan.
How the Pre-Approval Process
Works in Texas
The process of obtaining a mortgage loan pre-approval in Texas is only as complicated as your sources of money. If you have cash in the bank to make a down payment and have a steady job, it is a pretty straightforward process. If you are piecing together the cash for the down payment from an account here and a relative there, it is more complicated, but certainly not impossible. Either way, the process makes its way through six basic steps:
- Shop for a lender and choose the one that’s right for you (see next section)
- Contact the lender and complete a loan application, which includes your capital, capacity, and credit information
- The lender verifies your capital – the cash for the down payment and closing costs
- The lender verifies your capacity – that you are employed or have another source of money to pay your monthly payments
- The lender verifies your credit – they run a credit check to confirm that you have a history of paying your bills on time
- The lender issues a letter of pre-approval for the mortgage loan, which includes the highest loan amount you can get
How to Find a Lender
In San Antonio
Our mortgage lenders in the San Antonio area are great, but finding a good fit for your particular needs, in your particular situation, is the challenge. Lenders – like doctors, lawyers, or handymen – are not the same; interest rates fluctuate and the practices they follow can change over time.
To find a lender, I will point you to Nerdwallet’s Summary of Best San Antonio Mortgage Lenders of 2020. Nerdwallet’s main list contains the top 10 among all the lenders they have reviewed. Below the top 10 list they highlight local lenders they have not reviewed, but they are lenders who do a lot of mortgage loan business in San Antonio.
You are more than welcome to call on me for help finding a lender, getting a loan pre-approval, and looking at properties. Just use the contact form below.
Armed with a pre-approval from your lender, you can dive right in and see what’s on the market in San Antonio that fits your price range. Protecting yourself from the disappointment of finding your dream home and finding you can’t buy it is important; demonstrating to everyone involved that you are serious, have done your homework, and you mean business – that’s the extra benefit of a mortgage loan pre-approval.
Your realtor® should be very helpful to you in getting your loan pre-approval out of the way so you can focus on shopping the market until you find the right house. That’s what I call…
Click below to get a feel for the current San Antonio real estate market, but keep in mind that searching for the perfect house is a big deal.
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San Antonio, TX 78213
Sources & Links
Nerdwallet – https://www.nerdwallet.com/best/mortgages/san-atonio-mortgage-lenders
Texas Lending – https://www.texaslending.com/2019/08/30/free-mortgage-pre-approval/
Texas Mortgage Company – http://texasmortgage.com/faq.aspx#7
Texas Realtors® – https://www.texasrealestate.com/members/posts/the-difference-between-being-pre-qualified-and-pre-approved/
Texas State Affordable Housing Corporation – https://www.tsahc.org/homebuyers-renters/step-3#accordion-top-1