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Posted On: 08/03/2011

QUESTION:

Since real estate activity in many markets has slowed do buyers still need to pre qualify for mortgage lenders?

ANSWER:

Prior to the mortgage meltdown borrowers in many cases could get financing with no-doc and low-doc loan applications. Concerns regarding credit quality were often ignored and the result was that unprecedented numbers of borrowers had foreclosures, investors wound up with losses and taxpayer help was needed to fund a massive bank bailout.

Today the world is a very different place, and borrowers need to pre-qualify or get a pre-approval. (The terms "pre-approval" and "prequalify" may overlap, the important point is to speak with lenders.)

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First, the overwhelming majority of loans made today are FHA, VA or conventional. Each has plain qualification standards and each requires a fully documented loan application. Thus, the first reason to see a lender before buying is to assure you have all required information in hand.

Second, borrowers should review their mortgage options to see what type of loan financing makes the most sense in their situation.

Third, it may be true that many markets have slowed, but no seller wants to waste time dealing with a possibly-unqualified borrower. Buyers will have a stronger bargaining position if a seller knows that the prospective purchases have the financial ability to close the deal.

Under Wall Street reform lenders want to make qualified residential mortgages - QRMs - to avoid liability and reserve requirements. There are a number of standards loans must meet to attain QRM status, and many of them have to do with loan applications. The result is that by speaking with a lender you can determine precisely what documents will be required to have a successful application. Gather the paperwork you need, stick it in a folder and then when it's time to actually qualify for a loan your application can fly through the system.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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