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Did you know Northwestern Bank can help you determine your buying power online? Northwestern Bank's Mortgage Center steps you through a series of questions about your income and monthly obligation online. In a matter of minutes you have your pre-approval letter in-hand! This FREE service helps fine-tune your search so you don't spend time looking at homes you can't afford. And because sellers know you already have a loan virtually in your pocket, you have an edge when negotiating a home purchase.
Pre-Qualified/Pre-Approved
Pre-qualification acts as a dry-run of the loan application process. The mortgage lender will use details you provide about your credit, income, assets and debts to arrive at an estimate of how much mortgage you can afford. The whole process may take only minutes, or a few hours at most, and is usually free. While a pre-qual is non-binding to the lender (because the information you provide has not been verified), it does serve as a good indication to potential sellers of your general creditworthiness. Pre-approval takes pre-qualification one step further. The lender will contact your employer, your bank and others to verify your income, assets, debts and credit history, and then issue you a letter stating that your mortgage is approved for a certain amount within a certain time. You may be charged a small fee to cover the cost of your credit reports and your application, often refunded at closing.
Q: What's the benefit of getting pre-qualified or pre-approved? Pre-qualified and pre-approved buyers are 1) more attractive to sellers because they don't have to worry that they’ll accept your offer only to have your loan turned down; and 2) you’ll save time when you do find a home, because the lender will have already completed the necessary qualifying and underwriting steps.
Q: How do I find the right mortgage lender for me? We've put together a list of ten questions. Compare notes between lenders. The results will lead you to the mortgage lender that's right for you.
- What is the interest rate on this mortgage?
To determine exactly what you'll pay over the term of the loan, you need to know the rate. Rates change quickly, and if your credit is less than perfect, you may not be offered the lender's lowest figure. To effectively compare different lenders' programs, ask for the annual percentage rate (APR) of the mortgage interest, which is generally higher than the initial quoted rate because it includes some fees. But beware, the APR found in advertisements can be misleading. Mortgage lenders don't always include all the fees they charge in the calculation that determines APR, so customers who use that figure to shop rather than an itemized breakdown of rates, points and fees may end up comparing apples to oranges.
- How many discount and origination points will I pay?
Lenders may charge prepaid mortgage interest points to lower your interest rate or other points that have no benefit to you at all. Find out how many you'll be expected to pay.
- What are the closing costs?
Mortgages come with fees for various services provided by lenders and other parties involved in the transaction. You need to know what those fees will be as early as possible. Lenders are required to provide a written good faith estimate of closing costs within three days of receiving a loan application.
- When can I lock the interest rate and what will it cost me to do so?
Your interest rate might fluctuate between the time you apply and closing. To prevent it from going up, you may want to lock the rate, and even points, for a specified period. Ask your lender if lock fees apply.
- Is there a prepayment penalty on this loan?
There may be a prepayment penalty on your loan. Some penalties are 1 percent of the loan amount, others are equal to six months' interest, some apply only when you refinance or reduce the principal balance by more than 20 percent, and some kick in if you sell your home. Find out the duration of any penalty period and how the penalty is calculated. Some lenders offer lower interest rates to buyers who accept prepayment penalties.
- What is the minimum downpayment required for this loan?
The rate and terms of your loan will be based on a down payment figure, typically 0 to 20 percent of the sale price. If you can put more money down, you may be able to lower your rate and improve your terms; if you come up short, you may be required to pay mortgage insurance premiums.
- What are the qualifying guidelines for this loan?
These requirements relate to your income, employment, assets, liabilities and credit history. First-time home buyer programs, VA loans and other government-sponsored mortgage programs typically offer easier qualifying guidelines than conventional loans.
- What documents will I have to provide?
Most lenders will require proof of income and assets before approving your loan, and may require other documents as well. Buyers with excellent credit may qualify for a no-documentation or "no-doc" loan, but they can expect to pay a hefty down payment and higher interest rate.
- How long will it take to process my loan application?
The answer will depend on a number of variables. When the loan business is brisk, underwriters get backed up, verification takes longer, appraisals move slower and other bottlenecks develop along the loan pipeline. Lenders may say one week, but two to three weeks is probably more realistic during the peak season. You'll need their best guess to determine how long to lock in your loan.
- What might delay approval of my loan?
If you provide the lender with complete, accurate information, the loan process should run smoothly. If the underwriter discovers credit problems, however, there could be delays. Make sure you notify your lender if you change jobs, increase or decrease your salary, incur additional debt or change marital status between the time you submit an application and the time the loan is funded.
IMPORTANT: Should your financial circumstances change before closing, make sure to contact your lender, as your prequalification or preapproval may no longer be valid.
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