As a home buyer, you may be excited to hire a real estate agent or start searching property websites to find your dream home. But you need to do an important thing before starting your search – and that’s getting your mortgage preapproved. Wondering why you need to do this? Know more about it here.
Home loan preapproval- what is it?
Getting a loan preapproved is sort of getting the “stamp of endorsement” that indicates you’re a serious buyer. With a mortgage preapproval, you’ll know precisely the amount that a lender is willing to offer you. This, in turn, will let you plan your financial move better. Unlike mortgage “prequalification”, the process of loan preapproval is rather thorough.
The process involves sharing all your essential financial information with probable lenders. They’ll check, among other things, your credit score, to decide whether they’ll give you the loan and if they do, the terms of it and the applicable interest rates. Once they have evaluated your credit history, your financial information, and debts, they’ll let you know the amount of money they’re ready to lend you by way of mortgage. To arrive at this figure, they’ll calculate your debt-to-income ratio, which would give them an idea of the money you’ll need to cover a monthly mortgage payment after paying all your fixed debts. Though different types of loans need different DTI (debt-to-income) ratios, your mortgage lender will let you know the type of loan products you’re eligible for.
Though changes in your financial status could affect whether you finally get the mortgage or not, a preapproved home loan is usually a rock-solid estimate of the amount your mortgage lender is ready to offer you once you’ve found your dream home. That’s why when you’re thinking of buying a property, getting a preapproved mortgage would help since it’ll make the seller take you a lot more seriously. From a seller’s point of view, accepting offers that are accompanied by a home loan preapproval letter is a lot better and less risky. At times, sellers may find that their chosen buyer fails to qualify for the mortgage and is unable to close the deal. This would make the seller search for a buyer all over again. To save themselves from this trouble, they often reject offers from buyers who don’t have a preapproved mortgage. That’s why getting one is important for you to ensure you have a seamless buying process.
Obtaining a mortgage prequalification
This is different from a mortgage preapproval. Here, you’ll submit your name, income, and employment status to know about the probable budget range of a lender. This will help you get an idea of the budget within which your home should be so that getting a mortgage becomes easy.
Prequalifying for a home loan – what do you need to do?
You should shop around to ensure you’re getting the best mortgage deal. Remember to compare various lenders by their terms (like the time it will take to pay off your mortgage, whether any prepayment penalties are applicable, etc.) and the interest rates on offer, among others. However, prequalifying for a loan is not as unquestionable as getting a preapproved mortgage. Though the preapproval doesn’t mean a guarantee of a mortgage, pending the final review just prior to signing the mortgage papers, it does have much more weightage than just prequalifying. Also, it’s a step that may be suggested by your real estate agent since they prefer to work with a serious buyer.
Getting your home loan approved
This process involves the lender asking for a lot of information that includes your employment history, income, pay stubs, employer’s contact information, bank account statements and investment details, debts you owe, tax returns, identification such as your Social Security number, driver’s license, and probably some other relevant financial details too.
Have patience and be diligent with the process because once you’ve got a preapproved home loan, you’ll be a step closer to making your dream of owning a home a reality.