Why You Need a PreApproval Letter & How to Apply for a Home Loan

You need a PreApproval letter to start the home search phase in the home buying process in this area because:

You need to know exactly how much house you can afford and a lender is the best source for that information.
You won’t be able to make an offer on a home without a PreApproval letter, because they are almost always required by the Seller in this area.
I require this to ensure that you are not a “fraudster.”
I require this to “vet” you as part of my Safety Plan.

Here’s more…

Home sellers in our area will not (usually) accept an offer from a buyer unless it has a PreApproval letter with it. They don’t want to take their house off the market without some level of assurance that the buyer has lined up the financing for the home.

View My Video About This…

It may take several days or even a week to get a proper PreApproval letter. You will not (usually) have time to get one quickly, if we find a house you like and it’s in a multi-offer situation. So get PreApproved before you start looking at houses. You don’t want to “fall in love with a house” and then lose it because you weren’t prepared.

Plus, with all the scams and fraud that we real estate agents have to be on the lookout for, this is a typical “vetting” process that most high-quality, experienced agents require BEFORE working with a new home buyer. It’s kinda like a background check to ensure the buyer is “legit.”

And it’s also necessary for safety reasons. Believe it or not, showing empty houses to “strangers” is a dangerous proposition, and some agents have been MURDERED. So requiring a PreApproval letter is also a step to ensure my safety. 😉

You do not need to do a full loan application to get a preapproval letter, but it is more than just a quick phone call (like a prequalification).

Ask your lender to include a phrase in the letter that says your income, employment, and assets have been verified.

Items Needed To Apply for a Home Loan

After you find the right house and get it under contract, then you will need to fully apply for a home loan. Applying for a home loan these days is not for the “weak at heart”! It is a pain-in-the-neck process no matter how much money you have or which lender you choose. So mentally prepare yourself for a hassle, and you won’t be disappointed. ;-D

NOTE: Read information about home loans here.

There is a lot of paperwork required in order to obtain a home loan. If a company is going to loan you hundreds of thousands of dollars, then they are going to want to know a lot about you and your ability to pay the loan back.

You will have to provide much of the paperwork multiple times throughout the loan process because of new lending standards (Dodd-Frank Wall Street Reform and Consumer Protection Act legislation and the Patriot Act).

Lenders are now required to verify certain items several times through the process…so please don’t get offended or frustrated when they ask you for something that you have already provided them.

Here’s what you will probably need to fully apply for a home loan (aka, mortgage):

Proof of identity for borrowers including driver’s license and Social Security number.
Address history for three years.
Copy of tax returns for past 2 years.
Banks names and numbers for all checking and savings accounts.
Bank statements for the past 3 months.
Documentation of all income including pay stubs for past 2 months.
Proof of bonuses for 2 years if applicable.
W-2 forms showing income for past 2 years.
Job history for past 2 years.
Net worth sheet with list of all assets and liabilities including account numbers.
Most recent 401K statements and other retirement accounts.
Copy of gift letter if applicable.
If self-employed, copy of balance sheet.
Divorce decrees if divorced in the past 2 years.
Proof of residency, if applicable.
College transcript if you were a student in the past 2 years.
Bankruptcy discharge papers, if applicable.

What Not To Do

Maybe you’ve just gotten married. Maybe you got a raise… or maybe you’re just plain sick of renting. Whatever the case, you’ve decided that it’s time to buy a house. You’ll be given all kinds of advice and pointers about what you should do and how you should do it, but there are things you shouldn’t do that are equally important when applying for a home loan.

Don’t be deceptive or dishonest when you’re filling out your loan application. Even if you get away with fudging the numbers a little to secure a higher loan (which is loan fraud), what’s the payoff you’re looking for? A monthly payment that you can’t truly afford?

Avoid moving your money around. To eliminate potential fraud and provide a degree of quality control, a lender will review the source of funds for your down payment and closing costs. Most likely, you will be asked to provide recent statements for any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stocks, mutual funds, and even your 401K and retirement accounts. If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them, which could make it more difficult for the lender to document properly.

Once you’ve been approved for a certain amount, resist the temptation to make any big purchases that could affect your ability to service the loan. Examples might be a new car, a boat, or expensive furnishings.

Sure you may be able to afford the mortgage and a car payment, but what if an unexpected expense comes along that causes your monthly budget to become unbalanced—you’ve got a shiny new car, but you may have trouble affording that and gasoline, and the mortgage, and the utilities. You’re caught in a situation where you’ve over-extended yourself. Even if you’re able to make it work on a month-to-month basis, you may have trouble putting money to your savings account.

Sometimes, knowing what not to do is just as important as knowing what to do.

Big Bank vs. Local Lender

At the risk of offending anyone who works for a big bank…

Many people think that using their current “big bank” as the mortgage lender will speed up the process because “everything is in one place.” That is not true; it is a myth. My understanding is that all lenders have access to the same databases and such. I have been told that using your bank will not change the process or make it easier.

A “big bank” is Chase, Bank of America, Wells Fargo, etc. They may be great banks but, that doesn’t necessarily mean they are great mortgage lenders.

Please understand that you can use whichever lender you want. I highly recommend that you shop around and talk to multiple local lenders and your local credit union (if you have one). Always keep in mind that, to a big bank, you are only one customer in a million. They don’t really have to care that much about you, because you won’t really impact their business. In contrast, to a small, local lender or credit union, you are one in a hundred (or thousand), and very important to their business. Plus, local lenders know the local laws and procedures. Big national banks don’t necessarily know how things work in Texas.

Another thing is experience. I highly recommend that you use a very experienced loan officer (aka, lender), which you can get at a local mortgage company. At a big bank, you may end up with a very inexperienced loan officer, in another state, who makes the process challenging, because he/she doesn’t know what they’re doing.

Check your loan officer at https://www.nmlsconsumeraccess.org.

Plus, real estate agents don’t like big banks as lenders, because of delayed Closings. In a multi-offer situation, if you have a big bank as your lender, and another buyer has a local lender, the seller’s agent may highly recommend the other buyer. I’ve had listing agents tell me they won’t accept an offer from a buyer using a big bank! (This has happened multiple times.) So always remember that the lender you use, is part of your competitive advantage.

When you have deadlines to meet, and your movers are scheduled to pick up your belongings, and you will have no place to live if you don’t Close on time, then the stress of a delayed Closing is very real. Big banks are notorious for delayed Closings. If you miss your Closing date, you could lose your 1% earnest money, but there are no consequences for the lender.

I’ve had several clients over the years, who didn’t listen to me, used their big bank, and had horrible experiences. I’ve had multiple clients call me crying, the week before Closing, due to all the issues with their big bank lender and a delayed Closing. I had a horrible experience once, when a Wells Fargo loan officer demanded that my client leave her mother’s deathbed to perform a task, and the bank STILL didn’t Close the deal…and my client’s mother died while she was away. (I closed my Wells Fargo account over that! Absolutely horrible experience.) Unfortunately, there’s nothing that I can do to help, the week before Closing, if you used a big bank lender. So I try to warn my clients in advance, to try to prevent these sad and stressful scenarios.

To be fair, I have seen a handful of deals, with big bank lenders, that went very well. However, several of them were for employees of the bank…who had the “insider advantage.”

Lenders to Consider

If your employer offers a credit union, then check with it first. Plus, here is a list of lenders (loan officers) that my clients have used in the past:

Will Swallen
Bay Equity
713.558.0364
www.LoanWithWill.com
wswallen@bayeq.com

David Krichmar
DaveYourMortgageGuy.com
Dave@DaveYourMortgageGuy.com
832-689-6012

Reagan Tielke
Homeway Mortgage
281-764-8488
reagant@hwmtg.com

Roberto Johnson
Mortgage Loan Officer
First Community Credit Union
281.856.5681

Hussein Mourtada
New American Funding
949-271-0575
Hussein.Mourtada@nafinc.com
nafhomes.com/HusseinMourtada

Buying & Selling Real Estate Is a Huge Investment
Don’t You Deserve a Five Star Real Estate Agent?

Sheila Cox
832-779-2890

Sheila Cox Realtor — Author of KatyHomesForSaleTX.com…so you know that I know this area! Winner of Five Star award every year since 2010.

REALTORS DON’T “JUST” SELL HOUSES

Real estate agents don’t “just” sell houses; we sell a SERVICE to effectively guide home buyers and sellers through the entire real estate transaction, which usually takes several months. We are more like real estate consultants than we are salespeople. That’s probably why 86 percent of all home buyers and sellers choose to hire a real estate agent when buying or selling a home!

Buying or selling a home is not like buying or selling a TV, a computer, or a car. You can’t buy/sell a home on the Internet with a couple of clicks. There are MANY legal aspects, deadlines, and requirements that most people are not trained to handle. What’s more…mistakes along the way can cost you thousands and even hundreds of thousands of dollars. The financial risk is much greater than just about anything else you may buy.

That’s why you need your own dedicated, experienced real estate agent
looking out for YOUR best interests.

Please read the list of my value-added services for home buyers

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katy real estate guide — *Katy Relocation Guide*

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Why You Should Hire Sheila Cox As Your Agent

Integrity—I promise to give you candid opinions on all homes and areas so you can make the best decisions. I won’t ignore potential defects that can cost you money, or effect your resale value, in the future…I point them out to you! My job is to protect you, as much as possible, from defective homes while helping you make a sound financial investment. You will get more REAL info from me regarding homes/neighborhoods than you ever had before! (Read client testimonials)

Local Area Expertise—This isn’t just my business…it’s where I work and live (for 20+ years) so I really know the area. I will help you narrow your options and find the best neighborhood for you based on your specifications. For long-term resale value, the neighborhood you choose is just as important as the home you buy. (Download my Ultimate Katy Guide)

Great Pricing Data—I will give you the most in-depth data you have ever seen…to help you make the wisest decisions. This includes a professional CMA when you are ready to purchase a specific home…so you don’t pay too much. You can’t get this level of pricing information anywhere else. (Also see Pricing a Home Correctly)

Premium Customized Home Searches—Yes, you can search on your own, but no other home search available can filter down to the school level…and filter out the subdivisions that may be known to flood. Plus my search includes “Coming Soon” homes not listed on other websites. (Request a Premium Customized Home Search)

Video Home Tours—If you or your spouse lives out of the state or country, then you will enjoy my detailed video home tours. I have sold multiple homes to out-of-area clients “site unseen” by providing High Definition video walkthroughs of potential homes. My videos show front and back yards, closets, pantries, laundry rooms, and the garage…as well as the entire home. This gives you a complete picture of the house (unlike Matterports). I also point out any potential defects or deferred maintenance that I see. (view sample video walkthrough)

Easier Process—Moving your family (and possibly changing jobs) is stressful enough. I’m your transaction manager and will guide you, step-by-step, through the process so you never miss an important deadline. I assist with inspections, repair negotiations, home warranties, HOA compliance inspections, hazard insurance, surveys, appraisals, title commitment, home warranties, title commitment, and more. (Get Details of My Value-Added Services)

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