Loan product developments in recent years have greatly expanded the choices for all home buyers. Today's market offers borrowers strategies to maximize buying power, save cash for repairs or improvements, get a loan with little or no income verification, or even buy a home with no down payment. This article will discuss some of the new ways that buyers can take advantage of the expanding loan market to secure the best financing for their purchase and covers Preapprovals and No-income documentation loans

PreApprovals

A preapproval is a lender's analysis of you as a borrower without specific property information. In other words, your loan information is submitted to a lender for full underwriting and includes all borrower details, such as employment information, asset information, and credit history. The lender then approves you as a borrower, subject to a maximum loan amount, down payment, and interest rate.

Getting preapproved for a loan is critical in today's real estate environment. Many Realtors do not want to accept offers from buyers unless their home loan has already been approved by a lender. While this seems like a "catch 22'', that is, how can I get my loan approved if I haven't even found a home?, the tool is very useful. By going through the loan process prior to making an offer on a home, you can eliminate all of the obstacles to borrowing without jeopardizing an actual purchase transaction. Once your loan is approved, your real loan closing will be quick and subject only to a satisfactory appraisal and title report on the home.

To begin the preapproval process you need to make some assumptions for your purchase price, loan amount, and loan program. Any of these assumptions can change once you've found your home, but it helps to do the following:

Complete your application for the maximum loan amount and purchase price that you're interested in. You can always reduce these later. Get your loan approved at an interest rate that is higher than what you expect to take. Again, the loan program that you decide upon can differ from what you are initially approved at. The preapproval of your loan will ensure that your real purchase will go smoothly once you have located the perfect home.

No Income Documentation Loans

Often grouped together despite their subtle differences, "light documentation,'' "no-income verification'' and "quick qualifier,'' or "'QQ'' loans are a solution for many buyers who have income from sources that are hard to verify. Usually these loans are used by self-employed borrowers who have difficulty verifying all of their income, or by borrowers with very complex income structures. For example, a borrower who has income primarily from rental properties and investments may be hesitant to verify all sources of income due to the volumes of paperwork this would require. With a no income documentation loan, the borrower can simply state his income on the application, and the lender will use this stated income to qualify the loan.

Why do lenders do this? Because they recognize that by charging a slightly higher rate of interest they can rely on this stated income of the borrower and cover the additional risk. Lenders do in fact rely on verifying that the borrower has assets that logically match the stated income, along with excellent credit. With a higher cash down payment, typically 25% or higher, along with good credit, these loans allow borrowers to buy into purchase prices a lender wouldn't ordinarily qualify them for. Because no-income documentation loans carry a higher interest rate, they should only be used when necessary, not simply to avoid the paperwork requirements of a full documentation loan.