What to Remember About Home Loan Approval
May 5, 2024
If you want to buy a home or build one on your own lot with an FHA mortgage, there are distinct phases in your journey toward home ownership. One phase is the initial planning and saving you need in order to prepare for closing costs, the down payment, and other expenses.
Then there’s the house hunting phase, where you start looking for a house to make an offer on. This is different from the window shopping phase some borrowers go through when trying to decide whether to rent or own.
Pre-Approval vs. Prequalifiation for an FHA Mortgage
When you look at houses with an eye on making an offer, it helps to get prequalified for a loan to learn how much you might be approved for when you make the offer.
Prequalification, which estimates how much you could qualify to borrow, is not the same as pre-approval, which gives you a more concrete number for the loan amount.
You should do both steps in the appropriate place in the process. Prequalification tells the seller you’re serious, and not just trying the house on for size.
If the Appraisal Doesn’t Match the Asking Price
Some assume that in this scenario they may be required to purchase the home anyway, but with FHA mortgages you are allowed to walk away from a house that appraises lower than the asking price without forfeit of earnest money.
Closing Costs Must Be Paid According to the Lender’s Instructions
Some borrowers don’t realize that down payment money must be verified and that your closing costs payments are scrutinized to make sure an interested third party doesn’t provide an “inducement to purchase.”
That’s a scenario where the seller or someone else with a stake in the outcome of the transaction offers to pay a portion of your closing costs above the statutory 6%.
Anything higher requires the lender to reduce the amount of the loan by the overage. When closing day comes you typically can’t simply write a check for the down payment. Instead your lender will provide instructions. Don’t deviate from them.
If the Home Is Damaged Between Loan Approval and Closing Day
Did a storm, natural disaster, crime, or other problems affect the home? If there is damage, you and the lender will need to work out the extent of it, whether the damage is repairable, and what your options as the buyer might be. Don’t assume you’re still locked into the deal, but don’t assume the opposite is true, either.
Talk to The Seller Prior to Scheduling Your Moving Trucks
It’s a terrible idea to schedule your movers on the same day as closing day. In fact, your seller might not be ready to vacate the property just yet and it may be necessary to discuss that timeline with the owner.
It’s bad to assume closing day means “moving into your new house day” as delays may make moving in later a necessity. The lender could have a last minute schedule conflict. So could the seller, or even the buyer. It pays to remember that closing day should stand alone and not be combined with moving day.
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RELATED VIDEOS:
Don't Skip the Home Inspection
Bigger is Better With a Jumbo Loan
Insuring Mortgages With the FHA Funding Fee
Then there’s the house hunting phase, where you start looking for a house to make an offer on. This is different from the window shopping phase some borrowers go through when trying to decide whether to rent or own.
Pre-Approval vs. Prequalifiation for an FHA Mortgage
When you look at houses with an eye on making an offer, it helps to get prequalified for a loan to learn how much you might be approved for when you make the offer.
Prequalification, which estimates how much you could qualify to borrow, is not the same as pre-approval, which gives you a more concrete number for the loan amount.
You should do both steps in the appropriate place in the process. Prequalification tells the seller you’re serious, and not just trying the house on for size.
If the Appraisal Doesn’t Match the Asking Price
Some assume that in this scenario they may be required to purchase the home anyway, but with FHA mortgages you are allowed to walk away from a house that appraises lower than the asking price without forfeit of earnest money.
Closing Costs Must Be Paid According to the Lender’s Instructions
Some borrowers don’t realize that down payment money must be verified and that your closing costs payments are scrutinized to make sure an interested third party doesn’t provide an “inducement to purchase.”
That’s a scenario where the seller or someone else with a stake in the outcome of the transaction offers to pay a portion of your closing costs above the statutory 6%.
Anything higher requires the lender to reduce the amount of the loan by the overage. When closing day comes you typically can’t simply write a check for the down payment. Instead your lender will provide instructions. Don’t deviate from them.
If the Home Is Damaged Between Loan Approval and Closing Day
Did a storm, natural disaster, crime, or other problems affect the home? If there is damage, you and the lender will need to work out the extent of it, whether the damage is repairable, and what your options as the buyer might be. Don’t assume you’re still locked into the deal, but don’t assume the opposite is true, either.
Talk to The Seller Prior to Scheduling Your Moving Trucks
It’s a terrible idea to schedule your movers on the same day as closing day. In fact, your seller might not be ready to vacate the property just yet and it may be necessary to discuss that timeline with the owner.
It’s bad to assume closing day means “moving into your new house day” as delays may make moving in later a necessity. The lender could have a last minute schedule conflict. So could the seller, or even the buyer. It pays to remember that closing day should stand alone and not be combined with moving day.
------------------------------
RELATED VIDEOS:
Don't Skip the Home Inspection
Bigger is Better With a Jumbo Loan
Insuring Mortgages With the FHA Funding Fee
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