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Serving the
Chicago Community
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Financing Information
Pre-Qualification or Pre-Approval
Once you are planning on buying property you will need a Pre-Qualification or Pre-Approval
letter from a lender.
Pre-Qualification
The purpose of Pre-Qualification is:
- To establish the price range of homes/properties you should be viewing.
- To estimate the mortgage payment that you'd qualify for.
- To suggest programs that may allow you to qualify for a more expensive home than you
had previously thought.
In order to obtain a Pre-Qual letter, the Loan Officer will request information on: your
income, length of employment, credit history, current savings and current financial
obligations. No supporting documentation will be requested for you to present.
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Pre-Approval
The purpose of Pre-Approval is:
- To obtain a loan commitment (with or without conditions).
The Loan Application needs to be filled out by the borrower and all information
provided has to be documented.
Borrower to provide the Loan Officer with the following documents: current pay-stubs,
W-2s, tax returns, bank statements. Credit report will be obtained and verification of
employment done. Additional documentation might be needed: 1040's, list of monthly payments,
(credit cards, car or personal loans, etc.). If selling — copy of sales contract,
drivers license or state ID.
An application fee is usually requested at the time you apply for Pre-Approval.
Contract for purchase — if already executed.
If applicable, lender may request: filed divorce decree, filed release of judgments,
complete bankruptcy papers, paid receipts for all collections, DD214 and Certificate of
Eligibility (VA Loans).
Once all needed documents are provided and submitted to the underwriter, loan approval
or Pre-Approval letter is issued to qualified borrower.
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Do Not Do When Purchasing a Home!
1) Do not change jobs!
Changing jobs before or during the loan process might create a problem in qualifying
you for the loan. Most likely problems can occur if the job is in a different field or
at a lower salary.
2) Do not make any major purchases!
While you are applying for a loan, it's not a good idea to buy a new car, furniture, etc., which
would create an additional monthly payment.
Large monthly payments can affect the amount of loan you qualify for, and at the same time
might have an impact on your ability to purchase in a certain price range.
3) Do not pay off your bills!
Unless advised by a loan officer, do not pay off bills to help you qualify for a loan. If
such pay-off is necessary, you loan officer will guide you through the process.
4) Do not switch banks!
It's best, while working on obtaining a new loan, not to move money around. Moving the money
to a new bank/institution or even creating a new account may cause difficulties and confusion
during the verification process.
Frequently Used Mortgage Terms
- Adjustable Rate Mortgage (ARM)
- A type of loan on which payments may be adjusted as frequently as each month, based on
changes in the ARM rate index.
- Amortization
- The repayment of a debt in a specified number of equal periodic installments that may
include a portion of principal and accrued interest.
- Appraised Value
- The estimated value of a property established by a licensed professional with a
knowledge of real estate prices.
- Debt-to-Income Ratio
- The ratio of monthly debt payments to monthly gross income.
- Discount Points
- The amount paid either to maintain or lower the interest rate charged. Each point equals 1% of
the loan amount (that is, one point on a $100,000 mortgage would equal $1000).
- Equity
- The difference between the fair market value (appraised value) of your home and your
outstanding mortgage balance.
- Fixed Rate
- An interest rate which is fixed for the term of the loan.
- FHA Loan
- A loan insured by the Department of Housing and Urban Development.
- Interest Rate
- The periodic charge, expressed as a percentage, for use of credit.
- Owner-Occupied
- A property lived in by the borrower.
- PMI (Private Mortgage Insurance)
- An insurance policy offered by a private company to protect the lender against
loss on a default loan.
- PITI
- Principal, Interest, Taxes, Insurance — which comprise your mortgage payment.
- Principal
- The amount of the mortgage payment.
- Prepayment penalty
- A fee paid to the lending institution for paying off a loan prior to the
scheduled maturity date.
- Refinancing
- A process used to either pay off an existing loan or obtain a better interest rate
to reduce the borrower's monthly mortgage payment.
- Title Insurance
- Protection for lenders or homeowners against financial loss resulting from legal
defects of the title.
- Underwriting
- The process of verifying information and approving a loan.
- VA Loan
- A loan that is partially guaranteed by the Veterans Administration and made by
a private lender.
TO OBTAIN MORE INFORMATION ABOUT FINANCING YOU MAY WANT TO VISIT DIFFERENT LENDERS'
WEBSITES.
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Equal Housing Opportunity