Goodspeed: Home shoppers should get preapproved for a mortgage

LINDA GOODSPEED
CORRESPONDENT
The savvy buyer nails down the financing first through a preapproval process with a lender who will check the buyer’s credit report, verify employment and income, and take a look at the buyer’s debt.

QUESTION:We want to try and get into the housing market while interest rates are so low. We used a couple of online calculators and figured out we could afford a mortgage around $500,000. Is there anything else we need to do before we start looking?

ANSWER: Yes, get off the Internet. An online calculator is not a commitment that a lender will loan you $500,000.

The savvy buyer nails down the financing first through a preapproval process with a lender who will check the buyer’s credit report, verify employment and income, and take a look at the buyer’s debt.

Once the buyer knows what a lender will approve for a mortgage and receives a preapproval letter stating this amount, the buyer is ready to go house hunting. This way, the buyer looks only at homes in his price range and can then move quickly once he/she finds a desirable home.

In this hot market, most sellers will not even look at a buyer who is not preapproved. Also, by running a credit check before you go house hunting, you can take care of mistakes or small items that will improve your chances of getting financing and at better rates and terms.

Once you have been preapproved for a mortgage by a lender and have a preapproval letter, which is not a commitment but is as close as you can get, go back on the Internet and start your home-buying search.

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Good news: The new refinance fee that Fannie Mae and Freddie Mac imposed on borrowers last summer is ending.

Last September, the Federal Housing Agency, which oversees and regulates Fannie and Freddie, imposed a 0.5 percent fee on home mortgage refis. FHA added the new fee to provide a cushion against losses in case borrowers defaulted on their loans because of the coronavirus pandemic.

Fannie and Freddie buy the majority of home mortgages written by banks and repackage them as mortgage-backed securities that are guaranteed against default.

Since Fannie and Freddie buy the majority of their home loans, banks are careful to adhere to the agencies’ underwriting guidelines.

The current low-rate interest environment has sparked a nationwide housing purchase and refinance boom. Housing experts say it is not clear how much of an impact the added refi fee had on the mortgage market or what impact its elimination will have. But one thing is clear: refinancing just got a little bit cheaper and that is not a bad thing.

Linda Goodspeed is a longtime real estate writer and author of “In and out of Darkness.” Email her at: lrgoodspeed@comcast.net.