One of the vital steps during the home-buying process is to get a mortgage pre-approval. If you are serious about buying a home, obtaining a pre-approval shows sellers you are a serious buyer. Before I get into all the details about pre-approval, let’s define what it means and how it can affect your home buying.
HOW TO GET A MORTGAGE PRE-APPROVAL
A pre-approval letter is a letter showing how much you can afford on a home. To obtain a pre-approval letter from a mortgage lender, the lender will review your financial history, your debt to income ratio, and check your credit score. The financial documents lenders typically request from you include current pay stubs, tax returns, bank statements, and investment accounts. If you are self-employed, you may not have some of these documents. If that is the case, lenders usually ask for business accounts and often perform an audit on your income.
Other Documents Lenders Ask
Lenders will also ask to verify your identity by submitting a license or passport. When a lender has vetted you, it shows the seller that a lender will lend you money eventually. When the lender reviews your history and runs your credit, it can affect your credit score negatively. It is because the lender performs a hard inquiry on your credit history. Because of this, FICO, the company that provides a credit score, recommend you do all the pre-approval process within a specific period like 30 days.
How To Get The Best Mortgage Pre-Approval
So, how do you get the best mortgage pre-approval in the market? By obtaining letters from at least three lenders. When you shop around from multiple lenders, it helps you to compare loan costs. Even though this method is the best, most home buyers do not do it and usually go with the first lender. Of course, shopping around with multiple lenders means, they will all check your credit, which is why you only do this when you are serious about buying a home within three months or so.
Once you have obtained a mortgage pre-approval, you typically have 60 to 90 days to find a home. Otherwise, you may have to resubmit the information. Resubmitting information may hurt your initial loan terms the lender provided you; for instance, if your credit score falls within that period, or you added more debt to your finances. All of these can negatively impact your loan’s term. My advice is to make sure you do not apply for new loans when you are in the market to buy a new home.
Commit To How Much Mortgage You Can Afford
Another thing about mortgage approval is that you get to know the exact amount you qualify. Let’s say you find a home that costs 300k, and you want to buy, only to find out the bank will approve you for 100k. That can be disappointing. So, knowing the exact amount before shopping helps you target the appropriate price. Also, just because the bank approves you for 700k does not mean you should buy a 700k house. Always check your finances before the big commitment.
Overall, obtaining a mortgage pre-approval letter from a lender can save you lots of hassle in the long run. It shows sellers you are serious, and it makes you a competitive buyer, especially in a competitive market. You do not want to have an interest on a home before you check your eligibility from the lender. Doing so will only bring disappointments.
So far, I have discussed a series of steps to consider when buying a home. The next step is to start shopping for your new home. So, how did we go about shopping for our home? How did we pick the appropriate school district? I will discuss the details in my next post.
RELATED POST >>>>
- STEP 1 HOME-BUYING SERIES-REVIEW CREDIT HISTORY
- STEP 2 HOME-BUYING SERIES-SET A DOWN PAYMENT GOAL
- STEP 3 HOME-BUYING SERIES-CHOOSE A TYPE OF MORTGAGE LOAN
- STEP 4: PICK THE RIGHT MORTGAGE LENDER
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Next time,
Charly
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