You're scrolling the online listings, looking for houses, when -- boom! -- the love of your real estate life pops out from the page. You've found the perfect home, with the best location, layout, size, finishes, and price imaginable. You're ready to buy!
Just one problem: You haven't started looking for loans yet. And the seller will only accept offers from pre-approved buyers.
No problem," you think. "I'll get to that tomorrow."
Not so fast.
Getting a loan doesn't happen overnight. There are key steps that you have to go through, from pre-qualification, to pre-approval, to the mortgage approval itself.
How long should a borrower plan each process to take — and why do they matter? Let's take a look.
Step 1: Shopping for loans.
You wouldn't buy a car, furniture, or appliances without shopping around, would you? So you definitely shouldn't sign up for a 30-year loan without some serious research.
Search for mortgage providers online, or visit your local bank or credit union. Schedule a meeting with a mortgage loan officer, who will pull your credit (more on that below) and give you a reasonable estimate of the interest rate, closing costs and terms you may be able to expect. From there, expand your search to other financial institutions in your community or continue online.
The Fair Isaac Corporation, or FICO, allows people to "rate-shop" for a mortgage without dinging their credit scores. However, you need to do all of your shopping within a 14-day window; if you do, the credit bureaus will regard that first credit pull as a "ding" and ignore the subsequent ones.
Helpful tip: Pay attention to the annual percentage rate (APR), not just the interest rate. The APR covers the "total cost" of borrowing, including loan origination fees and other ancillary costs.
Total Time: 14 days.
Step 2: Get a pre-qualification letter.
Most buyers will require your pre-qualification letter before they'll even consider your offer — but don't worry, this step is quick and easy.
Ask any of the lenders with whom you spoke to during your mortgage shopping spree for a pre-qualification letter. These are relatively simple to get, as a "pre-qual" simply gives a rough, unverified estimate of the loan size you may qualify to receive. Most lenders will give you a pre-qualification based on your verbal self-reporting of your income, assets, debts, and down payment size.
Helpful tip: You don't need to take out a loan from the same lender that gave you a pre-qual letter.
Total Time: One to three days (overlapping with Step 1)
Step 3: Get pre-approval.
The pre-approval stage is when lenders verify everything you've told them. You'll need to supply proof of income, proof of assets, proof of employment, records of any debts you hold, and of course identification documents (like your Social Security card) and a credit report (which the lender will run).
If you have a simple situation -- e.g. you have stable employment with no debt -- this process can be as short as one to two weeks. If you're self-employed, own several other houses, have had a previous divorce or bankruptcy, have a pending court case or lawsuit against you, are in the U.S. on a temporary visa, or have other complicating factors, the loan officer may require additional documentation, which can extend the process several weeks or months.
Once you're pre-approved, you'll receive a conditional letter stating the exact amount of loan for which you're approved.
Helpful tip: Sellers prefer to work with buyers who have pre-approval letters, rather than pre-qualification letters (all else being equal).
Total Time: One week to several months
Step 4: Final loan approval.
Armed with your pre-approval letter, you make an offer on your dream home and it's accepted. (Hooray!) Next, you'll need the lender to conduct an appraisal.
In this instance, an "appraisal" is official verification that you're buying the home at a reasonable market value. It protects the lender from the risk of loaning an unreasonable sum. (For example, lending $300,000 on a house that should be valued at $220,000.)
Scheduling a time for a licensed appraiser to visit the property is frequently the longest part, and may take up to two weeks (depending on availability in your area, as well as the flexibility of the seller). Once the appraiser makes a home visit, the approval (or rejection) comes through within a day or two.
Time: Three days to two or more weeks
The good news? Now that you've passed the appraisal process, you're ready to close on this loan — and this house. Congratulations!
This article originally appeared on trulia.com.
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