The first step in the home-buying process is to obtain a letter of mortgage pre-approval. It might be difficult to decide on your budget without pre-approval. On top of that, you run the risk of not being taken seriously by sellers, especially in a real estate market where competition is fierce. Lenders consider the same factors they would for approving a conventional mortgage, such as your debt to income ratio and your credit score. By doing so, it will determine the promised loan amount. And, if you have a better financial situation, the more you are pre-approved to borrow.
Why a Mortgage Pre-approval is Important
You should obtain a mortgage pre-approval at the start of the home-buying process for 2 reasons:
You can determine your maximum loan amount
- The first reason is pre-approval will provide you with the most accurate estimate of how much house you can afford. By doing so, you’ll be aware of your budget and the types of homes you can actually afford. Knowing the maximum amount you can borrow helps you to focus your options.
You will present yourself as a potential buyer
- Secondly, a pre-approval letter demonstrates your ability to obtain a mortgage. In competitive markets, this alone puts you ahead of potential buyers who lack pre-approval. You should obtain pre-approval letters from several lenders if you really want to give yourself a competitive advantage in the market. After all, the most costly purchase you’ll likely ever make is a home. So, it pays to shop around. Even a small difference in the interest rates a lender charges can result in sizable savings. You can choose the lender who has given you the best terms when it comes time to make an offer.
How Can I Obtain a Pre-Approval?
Once you are done comparing several lenders and choosing the one you want to work with, first you can submit a loan application for pre-approval. You will need to submit some different documentation. By doing so, these records will be useful to the lender as they assess your capacity to make payments.
Also, according to Freddie Mac, the 4 C’s will be considered by your lender as they review your application. This 4C is your capacity, capital, collateral, and credit. These factors will help decide how much you may be eligible to borrow. And, you will receive a pre-approval letter from your lender outlining the loan amount they are willing to offer you if they decide you qualify for one. Also, do not forget to spend some time locating the lender who will make you the best offer.
The Bottom Line
In conclusion, you can determine your ability to pay for a mortgage and establish yourself as a serious home buyer by getting a mortgage pre-approval. You should know that applying for pre-approval at the start of your home-buying process is a good idea. Even better, apply multiple lenders to guarantee you get the best interest rate possible. Lastly, make sure to contact a local real estate expert. They will help you have the resources necessary to buy a home in the current market.
What To Do:
Did you find this read interesting? Need expert and white glove advice? Get in touch for local and professional real estate advice in your neighborhood. Fill in the form above to speak with a real estate professional that specializes in this topic and more!