Loan (pre) Approval vs. Loan Commitment

mortgage approvalThe process of getting a home mortgage can be confusing.

Its confusing mostly because its overwhelming. Lender spin accounts for a little confusion too. Lastly, the consumers desire for things to be simple makes it more overwhelming still.

One thing that trips up a lot of buyers is the pre-approval.

There’s the pre-approval mantra we hear so often. Homes listed used to say “bring your pre-approved buyers”, bank tag-lines talk about getting pre-approved, stream-lined pre-approval process, pre-qualification and more. Buyers meet up and tell their Realtor that “the loan is APPROVED, we just need to pick the house.” That tells me the mortgage lender is blowing some serious smoke where they shouldn’t be. That seems to be a common belief among buyers though.

Changing gears a bit, the St Louis Association of Realtors standard Residential Contract has a built in loan contingency in the contract. This contingency is called the loan commitment period, a time after which one can not back out of the contract due to the inability to obtain a loan without being in “breach of contract”. Restated simply, a home buyer has a certain period to get their loan approved. Usually about 3-4 weeks are needed to get this (clear) ‘loan commitment’ from a lender.

Back to the whole pre-approval thing. So if a buyer gets pre-approved before starting the whole real estate buying venture, what else needs to be done? Is the home shopper really “approved”?

The answer is NO.

The pre-approval process is usually a basic analysis of the major qualifying information. A few questions about employment terms, annual income, name, date of birth, social security number and so on. A credit report is run, but otherwise, little if any verification takes place before the buyer is pre-approved. Some lenders go further. They may ask for the last two years W-2 forms. The bottom line is that pre-approval amounts to a preliminary screening of the credit worthiness of a buyer.

The buyer finds the perfect St Louis home with their Realtor of choice, they negotiate a deal and are “under contract. Then what?

There’s a bunch of things we’re not addressing on the real estate side, but regarding the mortgage, here’s what happens:

1. The lender gets a copy of the contract and reviews the terms.

2. The lender will need to meet with the buyer, or work via mail to prepare a mortgage loan application.

3. The loan application, along with 2 years of tax returns, a check for the appraisal and other documentation specific to you will be returned to the lender.

4. Good lenders wait until buyer’s have passed through the inspection period to move forward with appraisals, but once they get the green light, an appraisal is ordered.

5. CONDO’s or HOMEOWNER ASSOCIATION HOMES ONLY -Good lenders get necessary questionaire completed early in the process. There may be a fee for this also. Finding out if a condominium can be financed before ordering an appraisal can be good.

6. Lenders get the application, credit reports, all corresponding documentation and the appraisal and submit it to their UNDERWRITER. Good lenders have “in house” underwriters, since having to submit items to an outside source complicate things immensely.

7. The Underwriter responds to the application at some point with CONDITIONS. These are the conditions that need to be “cleared” for them to approve the loan. The fewer conditions the better. Most good lenders would anticipate what conditions would come up and “put out the fires before they start”. Conditions that come up usually are letters of explanation from the buyer, their employers, the appraiser and additional documentation. Sometimes the underwriter can reject an appraisal completely and ask for a new one.

8. Responses to all the conditions must be submitted to the underwriter, then, ideally the loan passes from underwriting to the closing department. At this point, the buyer or buyer’s agent may receive what is known in the St Louis area as “loan commitment”. Other areas of the country are often times not familiar with this term. Here in St Louis, its part of the Residential Sales Contract.

So between the pre-approval process and LOAN COMMITMENT, there are 8 basic “hoops” that need to be jumped through, plus everything else, from writing the contract through inspections that need to be addressed before the bank can give the real approval. Final approval usually happens when the bank wires the funds and authorizes the title company to “fund” the deal, so BUYER’S, keep this process in the back of your mind when you make an offer and make sure you choose your lender quickly after your contract is written.

The moral of this story: a week after a contract is accepted is not the time to still be shopping rates and interviewing lenders! Talk to your Realtor every step of the way and make sure YOUR THINKING correlates to what you’ve agreed to in the contract and everything should turn out fine.

St Louis real estate is our specialty! If you’re looking for real estate anywhere in the St Louis, MO area, including St Louis City, St Louis County, St Charles, Ballwin, Chesterfield, Kirkwood, Webster Groves, or one of the other areas we serve, simply click the “Search St Louis Real Estate” link at the top or bottom of this page to begin your home search now.

What Do You Do?

st louis home buyer guide

Buyer's agents clear up confusion

Chris,
My wife & I are looking to buy our first home, and are looking to live in St. Louis City.

Do you give any kind of quick presentation on what services
……….you offer as a buyers agent?

Thanks,
D

D,

Your question is not an easy one to answer, because our services can vary depending upon your needs as a buyer.

 As a buyer’s agent, I work with you to find and analyze prospective homes, become educated with areas and choose  one that fits.  Sometimes buyers have a very good idea of what area they want to live in, sometimes not.  We usually consider alternatives that they may not be aware of offering similar types of homes.

 Once you have chosen a home you are most interested in, we prepare the offer / contract forms and help to explain the process.  We can add in contingencies and explain how your offer can be made attractive to the seller while still getting the deal you want.  We provide analysis on home sale prices (not listing prices) and discuss offering price and negotiation strategy.

 When an offer is submitted (usually to another agent) we negotiate on your behalf.  Our goal is to get the absolute best price for you by explaining how your offer is a reasonable price–where the seller’s asking price is unreasonable.

 An accepted offer becomes a legal contract and as a buyer, you are obligated to “perform” in certain areas.  We assist you in the process of having it inspected and inform you of everything you need to do and make sure that everything gets done to your satisfaction, in the time frame agreed upon in the contract.  A good buyer’s agent is like a quarterback:  we coordinate between all key players,  the seller’s agent, lender, inspectors, title company, and others needed to have a successful home purchase.

 Lastly, we assist with all kinds of odds and ends, meeting repair people, helping you to get the best rates with the title company & lender,  lining you up with any needed contractors such as electricians, painters, tile layers, roofers, and more. As we own many properties so we have vast connections. Our goal is to support you in any area needed and share our expertise in homes & homeownership.

 Thanks for contacting Premier Realty Exclusive!

Chris

St Louis real estate is our specialty! If you’re looking for real estate anywhere in the St Louis, MO area, including St Louis City, St Louis County, St Charles, Ballwin, Chesterfield, Kirkwood, Webster Groves, or one of the other areas we serve, simply click the “Search St Louis Real Estate” link at the top or bottom of this page to begin your home search now.

St Louis Home Buyer Guide

st louis home buyer guide
Home Ownership Happens!

Welcome to St Louis Home Buyer Guide;  the complete, up to date reference for home purchasing in the St Louis Missouri metropolitan area! 

As full time realtors, working in the field of real estate every day, a few things become apparent:

  • A great deal of confusion exists on how to buy a home.
  • Similar levels of confusion exist on where to get answers.
  • Many sources of information seem to add to the confusion. 

Every buying scenario is different, but home buyers have goals.  There are specific “needs and wants.” Whether its area, style, size, amenities, use or investment potential;  it’s important that home buyers identify what is important to them before they make the move.   This isn’t always easy.

Other people’s priorities and opinions always seem to surface.   Whether its family, friends, complete strangers or guides, someone looking to buy a home has a thirst for knowledge and often will seek advice from others that may or may not be the best resource.  A good buyer’s agent can be very useful in helping a buyer digest all the information and offer current, local and relevant information for an ultimately balanced approach to buying a home.

Thanks for visiting StLBuyerGuide.com and come back often for updates and St Louis home buying news!

St Louis real estate is our specialty! If you’re looking for real estate anywhere in the St Louis, MO area, including St Louis City, St Louis County, St Charles, Ballwin, Chesterfield, Kirkwood, Webster Groves, or one of the other areas we serve, simply click the “Search St Louis Real Estate” link at the top or bottom of this page to begin your home search now.