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  • Mortgage pre-approval

    The question is, whether you need a full down payment for a mortgage pre-approval. Technically, the answer here is that you need to have whatever's required by the mortgage program for which you're applying. However, let's not confuse pre-approval with pre-qualification. Pre-Qualification:

    • Does not guarantee approval
    • Underwriter hasn't seen your documents
    • Based purely on estimates
    • Can backfire on you during underwriting

    A pre-qualification is a term loosely used to define whether someone does or doesn't qualify to purchase a home. Usually, it involves simply calling a loan officer at either your broker or lender, asking them how to get pre-approved for a mortgage, and through discussion, determining your qualification to buy. It's could even be entirely verbal with no filled-out 1003 loan application...but you also don't get a written pre-approval letter. Pre-Approval:

    • Based on verified information
    • Requires completing a full 1003
    • Requires income and reserves documentation
    • Requires credit analysis
    • Must be underwritten
    • You get a written approval commitment
    • Holds a lot of value to realtors

    Bringing one of these bad boys to your negotiations gives you the upper hand, speeds the buying process (because the mortgage pre-approval has already been done), and assures both realtors and the seller that yours is a pre-approved home loan. This makes you a priority in their minds. A pre-approval letter means you've actually have a legitimate pre-approved home loan sitting on the underwriter's desk, awaiting a property to fill in the blanks. It means you've taken the time to go through the approval process with the lender, submitted your docs, which vary by loan, and the underwriter has run DU (desktop underwriter) on your loan (if required) to give you a mortgage pre-approval. You can see why this is a good idea before making a purchase offer.

    To further stress the importance, according to a year-end report by Berkshire Hathaway HomeServices Fox & Roach, Philadelphia homes are selling at the fastest pace in four years. With properties moving so quickly, you don't want to enter negotiations against another buyer who has a mortgage pre-approval when you don't.

    Now that we've clearly defined the difference between the two, the answer to the question of whether you need a down payment for a mortgage pre-approval should make more sense. It depends on the loan for which you're applying. The most common mortgage loan programs such as conventional Fannie Mae home loans do require a down payment to qualify for your home loan. Some others, however, do not. If your subject property meets USDA's Rural Development requirements as determined by their USDA Eligibility Map, then you won't need a down payment. The same goes for VA loans. If you're a military veteran with VA eligibility, then one of your benefits for having proudly served your country, is buying a home with no down payment.

    Most states and cities offer some form of purchase assistance programs. Philadelphia area residents, or anyone purchasing a home in Pennsylvania, can take advantage of the PHFA's (Pennsylvania Housing Finance Agency) Keystone Advantage program. This program allows you to borrow up to 4% at the time of this article, as a second mortgage with monthly payments to cover any down payment requirements. Check with your local government to determine availability in the area where you're purchasing your home.

    Once you've determined your loan program, the next step is to speak with your loan officer to get his or her recommendation. In some cases, the promise of a down payment (with adequate evidence) may be adequate for them to give you a conditional mortgage pre-approval letter. All this means is that you're pre-approved as long as you meet the written requirements mentioned in the letter. Cash reserves may also count as your down payment if they can be retrieved from your reserve account.

    Please keep in mind that things change from day-to-day in the mortgage industry, so please speak with your loan officer to get pre-approved now and to form a plan specific to your needs and situation. We hope this has helped you to determine if you need a full down payment for mortgage pre-approval. Happy house hunting!