Preapproval - Documents verified and factors involved

Can i get forms needed to get a pre approval for a home loan?

carol, there are no forms for you to use on your own. when you sit with, or speak with (phone) a lender, you will provide your personal information (name, SS #, birthdate, address, etc.) and the lender will run a credit report first. you'll be asked, also, to provide recent pay stubs and bank statements to verify that you make enough money to qualify and that you've got a few dollars or so in your bank accounts.

with all this information, your lender can provide you with a prequalification (or not), depending on your credit and your income vs. expenses.

there's not a specific form you need to get prequalified.

I am buying home for first time in CA and shopping for mortgage. I met with a Broker and 2 Banks, BoA and Chase.

For now I would like to get pre-approval from 2 to 3 lenders and make offer within my approved amount and affordability after finding a home that I like.

Once my offer is accepted I will ask lenders for locking the rate and make them compete to get best offer and sign up with one of them.

BoA guy said that he can give pre-approval letter and there is no fee for that. But he didn't ask for any documentation such as w2, paycheck and said it can be done over the phone as well. Didn't seem to be asking for proper loan application. I have specifically asked that I need pre-approval and not pre-qualification.

On the other hand...

Chase guy told me that I can't shop for mortgage in that manner. As per him once my offer is accepted I would have only 17 days and will not have time to shop from multiple lender and will have to go through the lender that I already picked you will not have choice and a lender can offer higher rate and more fees etc So I should go with the one that I trust and a bank that has fast approval process like Chase. According to him if I apply for pre-approval from multiple banks I'll loose money. He also mentioned about some fee that will be applied towards closing cost.


So I am quite confused now, can anyone decode what these guys are trying to tell me?

What I have to loose if I am taking pre-approval from multiple banks before even starting to look for the right home?

What is the best way to make them compete for best deals in terms of rate and fees?

Thanks,
Raj

Hi surajs,

As far as I can understand, the guy from Chase is correct. You will have to pay the closing costs. As far as I know, pre-qualification can be sought from various lenders but you should get pre-approved from the lender from whom you want to take out a mortgage.

Thanks,

Jerry

Thanks Jerry for reply.
When I am applying I would not even know if I will be pre-approved or not, still I will have to pay closing cost? It wouldn't make sense. Perhaps you meant application fee, am I right?

I believe it's a complete waste of time for all concerned - especially the lenders - when you ask for 2 or 3 to preapprove your request. I don't see the benefit to you, and all you're doing is wasting other peoples' time by visiting all those lenders.

Closing costs are just that - closing costs, to be paid at closing. I know of no lenders who charge you for a preapproval. If they do, I'd walk away and forget them.

Where that Chase guy got his 17 day thing is beyond me. Unless you have a purchase agreement that only provides 17 days for a full approval, there's no sense to it. The length of time you have to present a fully approved mortgage to your seller is negotiable when you complete your sales agreement. If you can get 30 days, that's a minimum you ought to seek. 17 days? Ridiculous.
Your BofA representative can't properly pre-approe you without proof of income, and doing it "over the phone" seems pretty far-fetched.

Here's my bottom line. Getting pre-approved is essential in this time. Realtors don't want to waste their time with people who haven't done so, and sellers are far more likely to sign on the dotted line with your offer if they know you've already been preapproved. You should expect to provide your paystub at the least, pay no fee, give evidence that you have the funds to buy the home, etc.

BofA and Chase don't seem to have much notion as to what is require based on what you say they told you. Find a different lender - though I'll agree that you need to find someone who you feel you can trust. "Fast approval process" is easy for any professional.

Thanks George for the most complete reply. It is very helpful.

It is now confirmed that Chase require application fee in 3 figures before providing GFE and pre-approval.

After online research I found that after new RESPA regulation GFE is binding and estimates need to be quite accurate and only some of the charges can go up-to 10% higher so they are more careful in giving GFE.
Also lender may not require documentation or any fee other than credit report fee. Correct me if I am wrong?

Every mortgage shopping guide (*.gov) tell me to Shop Compare Negotiate and for comparison I would need at lest 2 GFE. If lenders are giving GFE only after pre approvals then be it.

I have no intention to waste time or effort as well I do not wish to have many credit check in my credit report. But please tell me if there are other ways to shop?

Another reason to get at least 2 pre-approval would be, that in case one lender failed to give you final approval or provide funding at the end then you can quickly fall back to 2nd one. Is this a reasonable thought?

Since I do banking with Chase and BoA I talked to them first. But since chase required fee I also spoke to a WF loan officer. He also agreed to give me pre-approval by taking my details on phone in 20 minutes. I offered him to provide W2 and pay checks, fund proof etc and asked him to provide proper pre approval. He said at first only credit check would be sufficient if that is satisfactory he would verify income, fund etc.

I am also going to explore online mortgage quotes, any recommendations?

I figured out the 17 day magic!
In California 17 day contingency period is standard in Residential Purchase Agreements but I think it would be negotiable.

Hi surajs!

Welcome to forum!

Most of the lenders offer online quotes. You can go for it in order to find out what type of rates and terms you might get from a particular lender. This will help you in mortgage shopping and you can decide which lender you should go for.

Feel free to ask if you've further queries.

Sussane

Surajs, it looks like you are conscientiously trying to do whatever you can to find the right loan and are putting in the effort to do so. As you are also finding out, this is not as easy as a lot of people think and unfortunately a few suggestions here and there won't come close to giving you everything you really need to do this successfully. However, let me cover some of things you brought up.

First you only need to get a bonafide preapproval letter from one lender which will typically entail running your credit and verifying your income. Once that lender runs your credit you should get your credit scores from them and there should be no need for any other lender/broker you get quotes from to run your credit again, prior to actually completing a loan application. In fact, many mortgage companies will provide you with accurate quotes once they know what your credit scores are along with your income, current debts, value of the property and loan amount. People think that the GFE is binding but that only pertains to certain items. The biggest item that can change is the rate which eliminates the most crucial factor in the comparisons.

Second it is a good idea to have a backup loan source in case your first selection does not deliver for whatever reason, but again, it is not necessary to complete an application with them, just have their quote ready and go back to them if the need arises. I should also mention that the lender who has the best deal today may not have the best deal tomorrow. That's why it makes sense to have a top two list and just prior to moving forward contact them both for current rates and fees.

To get all you comparison shopping done should cost you no more out of pocket that the fee to get your credit report from one lender. Only after you decide to move forward and complete an application for the loan you want should you pay any other fees prior to closing. Typically you will be required to pay the appraisal fee at this time, but that is all you should be required to do. I would not pay any application/commitment or other fees other than for the credit report and appraisal prior to closing - period.

My final comment is to compare online rates at some of the top direct online lenders such as Amerisave, Aimloan and First Internet Bank of Indiana. After 7 years of running comparisons of various lenders who post rates online, I have found the smaller online lenders to usually be much more competitive in their pricing that the larger named companies such as Wells Fargo, BOA, Chase, Citi etc. This is not to say a good deal can not be gotten but it will depend on several factors including the loan officer you are dealing with at the larger banks and accounts you may have with them as well.

Good luck on finding your new home.

Jim, I am not originating any more but I find it far-fetched to think that lender #2 would accept lender #1's credit report when considering whether to issue a preapproval or not. Maybe there's a common bond between some of the lenders out there, but that's not my recollection at all.

I am in agreement with you on many of your comments, though. Absolutely, one preapproval letter will suffice (unless it's a foreclosed home, in which case there's usually a lender to whom an applicant is required to go).

Shopping for a potential replacement lender in the event the first one can't perform is kind of dicey, I think. The second guy isn't going to want to do much for a borrower without some reasonable expectation that he'll get the loan, after all. It's time, energy and money that's wasted by the lender who ends up getting nothing out of the deal because he's just the backup when the original lender ends up making the loan after all.

I haven't seen pricing affected by who one chooses as a loan officer or by deposits with the particular bank in many years. Where do these things exist in these days?

You got some of my points correctly and missed on others. I never suggested you need to get two approval letters so your off on your first comment inferring that is what I recommended. My point was if you have actual credit scores used by lenders, then you should be able to get an accurate quote without needing to get a GFE from everyone you want to get a quote from.

Second comment, having a backup lender for several reasons makes perfect common sense. I am not suggesting anyone complete two loan applications - I am recommending it is a good idea in most cases to get several quotes which might yield two potential sources to get the loan through. If that's the case then I would suggest contacting these two sources again on the same day and confirm the quotes you got from them before making the final decision. The originators are not out anything at this point other than the time required to provide their quote, which should take no more than 10 minutes.

Next, there are some loan officers at some of the larger mortgage companies that can get deals done at rates/terms that are difficult to beat. You should be aware how overages can be applied and work in this business - maybe not. I keep a database of about 25 lenders that I compare rates/fees against on a regular basis. I have been doing this for years so I know the dynamics of how fast things change on even a daily basis. That's why it is important to understand that the company with the best deal today might not even be competitive tomorrow.

It's also very important to know what information to get from each lender when getting quotes but that's another story for another day.

thanks guys for further insight, this forum is being very helpful and i am learning a great deal about mortgages.

first thing i did was get my credit report and score on my own. when i met the lo at boa i told him my score and other financial details, he also looked into my accounts with boa and he was able to give me a quote but not gfe. he would need to pull my credit report only when i need pre approval letter. in quote there was also a lender credit.

as jim said biggest problem for me in comparing the two mortgages are that the rates changes everyday as well as everyone quote differently. even the points are not always integer a 1, 2 or 3, sometimes it is 1.25. boa was offering about 1% lender credit while chase is giving 1% cash back on monthly payment(i figured it would be equivalent to 1/8% lower rate.) so its quite hard to compare.

as per the advertised rate is concerned i tried to look on their website but i always thought it was like msrp for cars. so one really need to talk to the lo to see how much lower from advertised rate he is offering, but i may be i am wrong.

i asked if he is a salary based or commission based employee he said very small part from commission and mostly salary but i would believe not everyone will tell you the truth about how much they are making if you made the deal. perhaps i shouldn't be even asking.

this is the biggest shopping of my life (more than 15 times that i bought anything before) and saving money is important to me but i think i have got the idea that i will not be able to do comparison shopping to the extent like i did for cars, get couple of quotes and make them compete and get at lower their price. it was a lot easier but since mortgage is a bigger project a lot more effort is justified.

for now i am going to get a pre approval and quote from one lender and few more quotes (maybe online) without credit check and see how they compare and continue the house search. once i find the house i'll get the quotes again and just go forward with one of them.

also if anyone can point me to some calculators, preferably excel sheet based. i found some amortization table generator by google search but i would like to see one that can compare diff int rate with diff one time cost (closing cost). there are usually apr given but that apr is true only if you keep the loan for its whole term. there can be a curve plotted for each option, for a 0 one time cost option it would be straight line and int rate = apr no matter how long you keep the loan. for a high closing cost option effective apr will start high but keep going down each month where as for negative closing cost apr will start low but will keep increasing each month. so by looking at such a graph one can easily tell which option is best if you refinance at 5 years or 7 years and so on. one can simply divide the one time cost among the months stayed in that loan but to be exact one should also consider the fact that after a certain period say 5 years you would owe different amount of principal in different loan option for the exact same amount of loan, and also the fact that you will save different amount on taxes since total interest you paid will be different. i hope i made some sense in this paragraph.

other than numbers what are the usual things in loan terms and condition one should watch out for?

Could have sworn I had logged in before posting but guess not so I needed to repost.

Surajs, you said you got your credit scores on your own. That's good but it was probably from a service that provides basically "educational" credit scores that are not the same scores as a mortgage lender uses. The problem is these "educational scores" can often be higher so I recommend letting one potential lender pull your credit to get the actual credit scores they use. Prior to having them pull your credit, I would verify that they will provide you with a copy of the scores which they should be able to do by immediately email. Then you will know for certain you are dealing with accurate numbers and so are the lenders you get quotes from. In most cases, a middle credit score of 740 will get you the best deal but there are lenders that offer their best pricing at 760. Credit scores are a major element as to what rates/fees you will be able to get and even one point can make a significant difference so make sure when getting quotes you are providing the typical credit scores actually used by mortgage lenders.

Your right about points, that there is no set rate reduction and this also varies from lender to lender. So if you are thinking of paying points to reduce your interest rate this could easily make lender #1 who is most competitve at no points (par pricing) to less competitive than lender #2 if say you are paying 1.5 points to reduce your rate. Also forget about using an APR when doing comparisons and just stick to interest rates and upfront closing costs. Otherwise you're not comparing apples with apples and not getting the true net cost of each loan which is what you want.

I have a comprehensive calculator that will compare quotes that will be available to the public in about a month. It will take into consideration all closing costs, tax deductions, interest rates, loan types and time value of money to show yearly which loan has the lowest net cost. However, when you get your quotes I can run some comparisons for you.

Regarding online quotes, there are a limited number of lenders that provide personal quotes that take into account credit scores and other needed information. One that does is Amerisave (which I have no affiliation with) and I often use them to compare current rates against as they are usually very competitive. Another good source to get quotes from are credit unions which sometimes provide personal online quotes. The key is to get all quotes on the same day and if possible request the quotes be given at the end of the day as rates can change several times daily for the same lender. It only takes a matter of minutes to prepare a quote and this can then be immediately emailed over to you.

Besides the bottom line loan numbers, there are several other key items you need to find out. Very important is the lender's rate lock policy because once you find the rate and terms you want you need to be able to quickly lock in that rate for a set number of days that will give you time to close before the rate floats again. Lenders have different policies regarding this and you need to know in advance what their requirements are and be able to lock as soon as possible.

You will also want to know what the typical time period is from application to closing. While one lender might be able to do it in 20 days another lender's time frame may be closer to 45 days or longer. When refinancing this usually isn't that big of a problem but with the purchase involving both a seller and buyer it's of course very important that deadlines be met.

Along this same line, you should find out if for some reason the closing gets delayed through no fault of yours, that the lender will extend the rate locked at no additional cost to you. This should be the standard practice but with everything double check this and make sure everything you are told and get is in writing.

Another question I would ask is if the lender will allow you to select the title company for the lender's title insurance policy. Sometimes lenders have special arrangments with third party service providers and the consumer benefits by getting a better deal and other times it works the other way and the consumer ends up paying more for these services than they should have. Wit title insurance, it could be a matter of several hundred dollars to you so find this out in advance.

One final thing to consider. If you are looking for homes on your own, California is a state that allows buyer rebates. If you haven't already committed to a real estate broker, you should find one that offers a rebate of the commission they receive from the seller. This could be anywhere from 1% to 1.5% of the sales price which you could then use against closing cost.

Thanks for the valuable information Jim. I have read quite a bit since then on mortgage professor this forum and other websites. Now I know that since I am a computer savvy barrower shopping directly with the banks are not the best way. I like the upfront online lender where all the details are disclosed up front, most of the fees are guaranteed and rate are competitive and you can check it everyday in seconds and decide if you need to lock.

I am exploring about Aimloan and Amerisave. I am not done yet but I like the Aimloan a bit better because they are offering obligation free/ no cost loan commitment letter after underwrites approval. This I think should give me bargain power for house price as well as for loan shopping since I would have choice even after approval. I can use Aimloan as my plan B, I can use Aimloan commitment letter to make offer. Once in purchase contract I can ask a broker/lender to beat/meet the rate as advertised on Aimloan to earn my business. If it doesn't workout my plan B offers quite competitive rates anyway. Is this plan good? Am I missing something?

Which one is good Aimloan or Amerisave?

So its look like the comparison shopping isn't costing me anything not even appraisal fee and credit report fee. Also these sites have very good lock policy, I am yet to do my research on reviews and quality of service of these sites. I think there will always be trade off between cost and quality of service. It looks to me that all the good points that Jim mentioned other than pure numbers, the online lenders have disclosed it where as for bank and broker I would have to remember to ask them.

I obtained my FICO score and Experian PLUS score, both are around 780. Good to know that these are only educational, I hope actual one obtained by lenders wont be too less than this. I noticed that Amerisave quoted rates did not change between FICO score 750 and 790. So I guess having anything above 750 should give best possible rates but I'll make sure to get my score and preapproval and then only rely on it.

So I am quite into online lenders right now but I am yet to decide if ARM or FRM is good for me. I am more inclined to ARM since rate are quite lower then FRM. I think I'll refinance before fixed rate 5/7 years period or payoff most of the debt. In worst case even if some debt left after 5/7 years and rate increase it wont affect me too much. I hope to get advice on it in this forum.

About the home buyer rebate if its only 1.5% then instead of buying home on your own one can buy through Redfin they give 1.5% plus they will provide broker services as well so better than completely on your own.

Thanks Jim for all very helpful mortgage shopping tips. I'll look forward to your comprehensive calculator that will compare quotes.

surajs21, you're really the atypical home loan shopper who typically takes about the same time comparing mortgage lenders as buying a computer. I commend you for the extra effort you are putting in.

Aimloan and Amerisave go back and forth on who has the better overall deals. I have run many comparisons over the years and at any given time one may be much more competitive than the other. Most recently, Amerisave was aggressively going after business whereas Aimloan wasn't. But like I said, things can change at any time, not only between lender but within the loan programs they offer, so you need to do update comparisons right down to the day you decide to apply.

Also, there should be no difference between lenders on getting a pre-approval commitment letter after you formally make an application. I would be more concerned about the rate lock policy and how soon you will be able to lock in the rate. Make sure whoever you apply with you understand their rate lock policy and as always, get everything in writing.

Once you nail down the top two loan sources I would contact each one of them the day you intend to apply to confirm everything (rates/fees/terms/options) and then go with the one you feel is offering you the best deal and terms for what you want. I personally wouldn't contact anyone else at this time and ask them to match or beat your top two choices. Whoever you contacted from the start should have provided you with their best deal upfront. Prior to shopping, make a list of where you plan to get quotes from and have each party provide you with a quote for the same product and terms on the same day. Don't mix up quotes for a FRM and an ARM.

One decision you have is do you intend to pay all closing costs out of pocket or are you willing to take a higher interest rate to cover some or all of the non-recurring closing costs. There are pluses and negatives either way on this but it is an option you have.

Options for the comparison would be to ask the LOs (loan originators) to provide you with a quote for a 30 year fixed rate loan at the rate closest to par where you pay no points. In this case you would be paying all closing costs out of pocket. You could also make your comparison by asking for the LOs to provide you with a rate that would cover their origination fees. Or if you have a rate you like that you believe is available from having gone to an online site such as Amerisave or Aimloan you could simply provide the rate (ie 5.00%) and use that to compare the quotes with. Once you get the numbers from whichever method you use, then they need to be plugged into a calculator that can provide you with the net cost for each year you are in the loan.

Regarding your credit score, I think to get Amerisave's best rate/fees you may need a middle score of 760 and possibly 740 at Aimloan which you will need to confirm. The "educational" scores you have now, unfortunately can be off by quite a bit from the actual scores a mortgage lender will use and this could change the actual rate and fees you will be offered. It would probably be very little in your case however.

As far as whether a FRM or an ARM would be a better choice that is a difficult one to answer. Right now the main indexes being used for ARMs are very low (LIBOR, CMT) and even with the lender margin added in are below 4%. Where they will be in the future is anybody's guess so the first question is how long you plan to live in the home not how long before you plan to refinance as rates will unlikely go lower for the ARMs in the future. If you could get an initial rate of say 3.875% or lower now you would have guaranteed monthly savings for 5 years or so. Then, however, the rate would likely go up 2% beginning in the 6th year possibly capping out at 8.3875%. Actually the Pentagon Federal Credit Union offers a 5/5 ARM where after 5 years the maximum the rate can go up is 2% at reset and that rate remains for the next 5 years. This would mean if you could get a 3.875% rate now - worst case scenario would be five years at 3.875% and then the next five years at 5.875%. Not a bad option, especially if you plan on making extra payments or plan on moving within a 10 year period.

Final comment is there are a number of buyer agents that will offer a rebate which could end up covering a good part of your loan closing costs. Just make sure to run this buy the lenders you are considering to make sure they are okay with the rebate. There shouldn't be any problem but always better to be safe than sorry.

Oh, regarding the calculator, it's now in development to be made into a downloadable version. Once you have whittled down your selection I can provide you with a detailed breakdown of your top two or three choices so you can see each year what the net costs of each loan are.

Good luck with both your house hunting and search for the best loan you deserve and qualify for.