Mortgage Pre Approval is one of the first & most important steps in your home buying process. Pre-approval is not necessarily a guarantee that you will receive a specific rate or mortgage from that lender because circumstances may change from the time you get pre-approved until the time you’re ready to make a purchase.
It will help you find out:-
· How much you can afford
· Maximum Home price
· Mortgage Payment
Your mortgage pre-approval helps you make a well informed decision before you start looking for your dream house, you may not be able to afford. Some lenders may give you a rate lock so you don’t have to worry about rising interest rates while you look for a new home.
Pre-qualification vs. Pre-approval
A Mortgage Pre-Qualification gives an estimate of how much one can afford to spend on buying a home, but a pre-approval is much more that that where the lender has checked and verified borrower’s:
- Credit
- Income, employment, bank statements
- Down payment & closing cost requirement
Based on that the lender can hold the interest rate for the qualified home buyers for up to 90 days.
Here are some of the key reasons as why it is important:-
Save you a lot of time & efforts
You’ll spend a lot of time looking for your dream house and may get turned down for mortgage once you’re ready to make an offer.
This will add more stress & pressure on your buying decision and involve a lot of your time.
And if you’re pre-approved - you don’t have to worry about it and will feel more confident when you make an offer as your financials & credit etc. has already been checked by the lender.
Seller acceptance rates are higher for pre-approval buyers
Once you find the perfect home, the next step can go two different ways depending on a pre-approval.
If you’re not pre-approved and you find a home you want to make an offer on, you’re taking a gamble. The sellers are less willing to accept offers from a buyer without a pre-approval and if they’ll go on to the next offer—and you’ll miss out.
But if you are pre-approved, you clearly stand a chance and can negotiate for a lower price or include appliances or pay for the closing costs.
Well Informed decision
Most of us start out by browsing online to get an idea of the neighborhoods. If you don’t know what you can afford, you may be looking out of your price range and wasting your time. You may also be looking below what you would have qualified for and not getting the right home for you.
If you start off by getting a pre-approval, you can sort by price, identify the right neighborhoods, and find your dream home much faster.
Remember, when you buy your home, it’s not just the purchase price you need to worry about. You need to make sure you can also comfortably afford all of the other costs associated with owning a home including property taxes and utility bills. For a first-time buyer, these added costs may surprise you! The pre-approval process helps clarify it all and ensure you don’t become house poor.
General Requirements for Pre-Approval
1. Income
The borrower needs to prove the required income as:
- Recent pay stubs
- Bank statements
- Last 2 years tax returns
2. Down Payment
The borrower needs to prove of having required funds for the down payment and thec closing cost.
If the down payment is less than 20% then the borrower needs to buy Mortgage Default Insurance and the one time premium can be added to the loan amount.
3. Credit
Lower the borrower’s credit score - the riskier will he be considered and lower are their chances of mortgage approval will be. On the other hand, a higher credit score shows less risk.
It’s important to make sure that your credit is in the best shape before you apply for a mortgage. Big Banks (Traditional financial institutions) have a very strict approval process and ensure the potential borrowers need to have high credit scores and presents lower risk.
4. Employment
A borrower needs to prove a stable employment and may require:
- Pay Stubs
- Employer letter
If Self-employed:
- Details of business – stability, location, nature of business and demand
- At least the two most recent years' tax returns
Tips for Pre-approval
· Start the pre-approval process as early as possible, before you start your house hunt
· Make sure your credit and debt is in best possible shape before you apply for pre-Approval
· A pre-approval is of no-obligation means you can shop around
The mortgage pre-approval is of no charge and is a free process.
As discussed, mortgage pre-approval is an important step as it helps to take the pressure off your home search to make it stress-free and ensure you don’t become house poor.
Above all, there's no cost to you and you're not obligated to accept the mortgage pre-approval and can shop around.
Get Pre-Qualified in minutes for free: http://bit.ly/mortgageprequalification
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