Are you preparing to buy a new home? If so there is likely a lot of things you have to think about and consider. One of these is getting pre-approved for a mortgage before you start house hunting. This process can be fairly simple and there are a lot of great programs to help you get approved like USDA and VA loans for those that qualify.
What Is a pre-approved home loan?
The best way to buy a home with a mortgage is to seek preapproval. this allows you to go into house hunting with full knowledge of what your ultimate budget.
A pre-approved mortgage is a statement from a lender saying it will provide you with a specific loan amount for the purchase of your property at a specific interest rate for a specific period of time.
Your credit score, debt to income ratio, and your total income are all taken into consideration when a lender decides whether to approve your pre-approval mortgage. The pre-approval of a mortgage is not a permanent decision and only lasts 90 to 120 days.
How does a Pre-approved mortgage work?
Before buying a house, someone might complete a mortgage application and supply information about their income and credit history to a mortgage broker. Your broker will contact the lender after reviewing and checking the submitted documents to determine whether you qualify for a mortgage loan. Several lenders will offer to lend the person the required amount at a specified interest rate to the broker. A lender provides a statement showing that person is “prequalified” for the amount, as determined by the lender.
Why get a pre-approved mortgage?
A pre-approved mortgage offers a variety of benefits. You can find homes within your budget without spending a lot of time on the search. Additionally, it shows your property dealer that you’re serious about buying a house. Using this method, you can expect a more targeted and faster service. In addition, it provides a green light to the seller that there will be no problems in your financial transaction.
Pre-approval is an important part of the mortgage process. A pre-approved home loan is very helpful in the home buying process. Here are some ways a pre-approved mortgage can help you:
- The purchasing of a house becomes more financially feasible with a mortgage preapproval. If you do this, you can remove any doubts and guesswork about your ability to purchase your dream house.
- In comparison to those who do not have pre-approval for their mortgage loan, buyers who have pre-approval are much better able to negotiate.
- Getting pre-approved for a mortgage will enable you to determine the price range of the house that you can afford. Even worse is the situation when you love a house but later find out that its price range is outside your budget. Additionally, you may miss out on your dream house if you do not have a mortgage pre-approval.
- By getting a mortgage pre-approval, you establish yourself as a strong, solid buyer capable of fulfilling all aspects of the sales and purchase contract. Sellers are more likely to accept offers from buyers with pre-approved mortgages. Your productivity increases when you have to deal with several office situations at the same time.
- Your pre-approved mortgage loan will facilitate the closing of your deal once you have signed the purchasing contract because most of your required documents have already been submitted your lenders.
How to get a pre-approved mortgage
In order to get a pre-approved mortgage, you have to meet the broker or the lender. The lenders representative will ask you a series of questions regarding the amount they will lend you. Following are the documents you need to supply to your broker or lender in order to qualify for a pre-approved mortgage loan:
Credit Score
Your credit score is one of the most important factors in determining the qualification of your pre-approved mortgage loan. Generally, if your credit score is between 680 and 900, you will qualify for a mortgage from a company class “A” lender, such as the major banks in your area.
If your credit score is below 680 and above 600, you will not be able to qualify from a major bank. You will have to go through “B” level lender such as Home Trust.
And if your credit score is below 600, then you will not be able to qualify for a pre-approved mortgage loan.
The better your credit score the better your interest rate and faster you can pay off your loan. If your score is low, make it a point to improve your credit score.
Down payment
Down payment is the amount of money you will pay in order to purchase your house. Your down payment size affects the loan amount you will borrow from the lender. The higher your down payment the larger amount you will qualify for or the faster you can pay off your home loan.
Debt Service Ratio
A lender uses this ratio to assess your ability to pay a mortgage, taking into consideration your current income level, your expenses, and your debts. This ratio is used by lenders to know whether you will be able to afford your monthly mortgage payment or not.
The first step to buying a home is getting pre-approved for the mortgage. It will simplify everything else in the process. In most cases, agents and sellers ask buyers to submit offers accompanied by pre-approval letters from lenders. Some agents will not even do a showing without pre-approval first.
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