Buying- Getting Preapproved

As a buyer, it is important to take the time to get pre-approved. A pre-approval is a letter from a loan officer that states you have had your income and assets verified and are ready to purchase a home. You should always get pre-approved before you start looking for homes.

You should be pre-approved before you start looking for a home because if you fall in love with a home, you’ll need proof that you can afford this home by providing the seller this letter.

The pre-approval process is pretty simple. You’ll meet with a loan officer of your choice, and they’ll ask a bunch of questions, run a credit check, and verify your income. It usually takes a few days to get the pre-approval, but once you have it, you’re good to go.

They can offer you different kinds of mortgages, such as an FHA loan, a conventional loan, an ARM product, and a VA or DVA loan. We’ll briefly talk about each of these types of loan products.

The FHA loan is a product for first-time home buyers. It stands for Federal Housing Administration. It’s a loan that is insured by the federal government (Housing and Urban Development, or HUD). Since it’s insured by HUD, the criteria for the loan can be a little more relaxed. They allow for a down payment as low as 3.5%, and also allow for a lower credit score than a conventional loan. The FHA loan has an initial upfront Mortgage Insurance Premium (MIP), as well as a monthly fee. With this type of loan the house  has to meet certain minimum lending requirements through the appraisal process.

The conventional loan is the most commonly used loan with a minimum of 3% down. Anything less than 20% down and you will need to pay Private Mortgage Insurance (PMI). This product also requires a higher minimum credit score to qualify.

The VA loan, or DVA loan, which stands for the Department of Veteran Affairs, is a special product designed for veterans. This product gives a unique benefit of 0% down at a competitive interest rate.

The final loan type we’ll discuss is the Adjustable Rate Mortgage (ARM). This is still a 30-year loan product, with a fixed interest rate of 5, 7, or 10-years. For example, a 7-year Arm means that the first 7 years will have a fixed interest rate, which is usually lower by a significant amount compared to a 30-year fixed convention mortgage. After the 7th year, and every year thereafter, the rate can adjust. There are usually limits as to how much it can adjust. For example a maximum of 2% per year with a lifetime cap of 5% higher or lower than the initial interest rate. An example is as follows: If you obtain a 7-year ARM at 4% today, in year 8, it could go to a maximum of 6%, in year 9… 8%, and in year 10 , 9%. Remember these caps are different for each bank. The benefit of an ARM product, is that the interest rate is significantly lower than the 30-year mortgage.


Contact   Info

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7700 France Ave S #230
Edina, MN 55435
(952) 915-2252 (direct office)
(952) 884-8404 (office front desk)

Steven Hong, REALTOR
Team lead
Old Home Certified
(612) 990-9009

Each office independently owned and operated.  All information is deemed reliable but not guaranteed, and should be independently reviewed and verified. Equal opportunity housing. 

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