Are you preparing for that next step in life by purchasing your first home? If so, you are probably going to need a home loan otherwise known as a mortgage. Saving up for a down payment is probably a step that you are taking or about to take. After you have saved up at least 5% (in most but not all cases) or more it is time to start looking at homes. But before you do anything, a wise move that you should make is getting pre-approved or approved for a mortgage loan. Having a lender pre-approve you for a mortgage is an important and necessary step for many reasons. First of all, it will assist in determining your budget for what you can pay for a new home. This will help you to avoid looking at countless homes that are “out of your budget” for a mortgage. Secondly, you can use the letter of pre-approval from the lender to strengthen your offer when presenting an offer to purchase. A seller likes to see that they have an offer from a qualified buyer and this will assist in the negotiation process.
Mortgage financing can be a difficult world to navigate, but it does not have to be. Today, we are going to take a look at both of these options and how they can help you find your dream home!
Pre-approved Home Loans
During the pre-approval you will have to provide the lender of your choice with your personal information. They will use your personal information such as your name, birthdate and social security number. Then they will use this information to learn everything they can about your credit history including your credit score. The lender will also need to get information on your income and assets. With this information, they will tell you how much the bank is willing to lend you and what type of interest rate you can expect to be paying. Once you are pre-approved, you will have a much better idea of what type of home you can actually afford. The pre-qualification process normally only takes 24 hours or a few days at the most. But remember you have to be fully approved by your lender in order to purchase the home. It is important to note that this process in not a “deep dive” into your ability to purchase a home and you can still be declined for a formal approval. You can minimize that risk by providing accurate income information and continuing to pay your monthly bills. It is also important that you realize that any changes to your credit history such as buying a new car and adding any additional payments can make a big difference for final approval.
This only comes after you have picked out your dream home and submitted to your lender for final approval. This final step in the mortgage process entails the lender approving BOTH you and the home. They will have to check the home out by conducting an appraisal and pest inspection. Even if you have been pre-approved for the home, mortgage approval still depends on the lender and you might still be turned down for the loan. But if everything checks out, you will be approved and you will be ready to make an offer on the home. This process can take weeks and sometimes months to complete depending on the size of the loan and the type of home. A mortgage approval letter is issued ONLY when the lender is certain that they will make the mortgage. Keep in mind that the lender will check again to make sure that nothing has changed since the application was taken. For example – Did you change jobs? Did you get a pay cut? Get a new loan? Did you max out your credit card? Did you fail to make a monthly payment? Did you lose your job? Any change in information can cause the lender to change their mind. That is why it is very important to be up-front with your lender if there are any changes.