What is the Lending Process?

If you would like a financial institution to lend you thousands, hundreds of thousands, or even millions of dollars, then you need to get with the process.

You may be wondering, can’t I just go look at houses and then start the lending process once I find a house? No! Why in the world would you go shopping if you ain’t got no money?

Benefits of Starting The Lending Process Sooner Rather Than Later

The purpose of the lending process is much more than just getting approved for a loan. It is all about leveraging other people’s money, with the least amount of cost to you. There is no one size fits all when it comes to financing. There are various types of financing, which I will go into detail with my next post, that are better suited to the profile of the buyer and/or the property type.

Then there is the consideration of whether to use a banking institution or a mortgage broker, which I will also discuss the benefits and disadvantages of each at a later time. Besides, on Oahu, inventory has been at record lows all year. It is not unusual for nice homes or the rare “good deal” to be under contract before the first public open house. You also want to know how much you qualify for and what the corresponding monthly payment will be.

Therefore, please get your pre-approval before you go looking at houses, so you are ready to move forward the moment you find it.

Pre-Qualification or Pre-Approval, Which is Better?

Don’t waste your time, or anyone else’s for that matter, by getting a pre-qualification instead of a pre-approval. No, it is not the same, as there is a huge difference between the two. A pre-qualification is that you have spoken with a lender/broker, you told them how much you earn and what you owe, and they have determined that you are a candidate for a loan. They may even provide you with a pre-qualification letter. Since none of your information has thus been confirmed as of yet, that pre-qualification letter is good for nothing more than the paper roll by your toilet.

I’m Ready, Now What?

Your pre-approval process begins with a conversation. With whom? With your favorite mortgage lender or mortgage broker. Since they intend to lend you a large sum of money, expect them to get all up in your business.

The first step is to pull your credit. FICO score determines everything. In order to pull your credit, you will need to provide your full legal name, your date of birth, your social security number, and a blood sample. Just kidding about the blood sample. If your FICO is above 640, that may be enough to proceed to step 2. Keep in mind that the higher the score, the more options you will have and the better your interest rate will be.

For step 2, remember 2/2/2. Now you will be required to submit documentation, which includes your 2 most current annual tax returns, 2 most current bank statements to all your accounts (even those you have hid from your significant other), and your 2 most current pay stubs. Once your income and debt is confirmed, a maximum approval price will be issued.

Upon pre-approval, NOW you can go shopping. Obviously, it is ok to provide your approval details with your agent, as it is their fiduciary duty to pursue and protect your interest above all else. Your approval details should not be shared with anyone else, especially not with the listing agent(s) or seller(s) of any home you visit. Don’t show your cards when the game has not even begun!

How Long Does the Process Take?

Step 1 of the approval process can be completed in as little as 15 minutes and be done over the phone, in person, or online. Submission of your financial documents can be done as soon as you have gathered them. The entire process is relatively painless and not too scary. Just make sure that you choose to work with a company that has been around for some time and that it has a good reputation. So, go start the lending process, if you haven’t already, and have fun shopping!

Want to Know More?

If you have any questions about the lending process, or about purchasing real estate on Oahu, feel free to contact me.