Getting a pre-approval for a mortgage is an important step BEFORE starting your home search. If you are stepping foot into home buying territory, it is a good idea to start your journey by getting a pre-approved Mortgage rate and making sure you qualify for a mortgage.
What is a Mortgage?
Buying a house is exciting, but the idea of a mortgage can dampen some spirits. A mortgage in its simplest concept is a loan that you receive to cover the cost of a house, because, let’s face it…no one really has the money to buy a home outright.
A mortgage enables homebuyers to eventually pay off a house that they purchase through steady payments each month. Mortgages can be loaned from a bank, mortgage companies or loan companies to name just a few options. For the best mortgage recommendations, it’s good to talk to a Real Estate Agent or Real Estate Broker to get their advice on the best mortgage lenders and best rates.
Why Should I have a pre-approved Mortgage?
A pre-approved mortgage works to your benefit when beginning the house hunt. When you shop around for a mortgage, you’re getting an idea of how much you can afford in terms of house costs. You’ll also get an idea of how much you’ll need to pay each month towards your principal (the money that you will owe on the mortgage). This is great not only for your personal planning but also shows to Real Estate agents and sellers that you are serious about buying a home.
The worst that can happen in the home buying process is that you find a home that you love but you are not approved for a mortgage. By having a pre-approved mortgage, you ensure that you are not disappointed when you’ve found a house to make an offer on.
What’s involved in the pre-approval process?
In the pre-approval process, the lender will take a look at a few things that let them know how much money they can reasonably lend out to you and what interest rate they should charge you. During this part of their research, they will let you know what your possible interest rate can be, how much your mortgage payments will be monthly and the largest mortgage you can qualify for.
The thing to keep in mind is that whatever you are pre-approved for may not be the same as the mortgage loan you will get. The factor missing in the pre-approval process is how much a home costs and how much of a down payment you will make on said home.
This is why it is important to know what your top mortgage amount will be so you can make decisions based on this, including how much you can realistically spend on a property and how much money you’ll have for things like closing costs.
What Do I Need to Show For a Pre-Approval?
You will also need to snag a copy of your credit score to show the lender. Your credit score will play a factor in how much a lender decides is an appropriate amount to give you for your mortgage. In cases where interested homebuyers have a bad credit score, the lender may ask for a co-signer on the mortgage or they may require a larger down payment.
In the pre-approval process, the lender needs to analyze how much risk is involved with lending you money for your mortgage. Beyond your credit score, they will look at your assets, income, debts and proof of employment so they can make an informed decision.
The Outcome of the Pre-Approval Process
A pre-approval for a mortgage can go one of two ways—you can either be pre-approved, or you will be disapproved and must find a different mortgage lender. In the event that you are approved, this gives you an ideal head start when you start to look for homes on sale. This will also help your Real Estate Agent find a home that is suitable for your pre-approved mortgage and will help you understand the monthly payments you need to make once you receive your mortgage.
Be a well-informed homebuyer and do your pre-approval shopping. If you are not approved immediately, it’s not necessarily the end of your home buying dreams. You just need to find a different mortgage lender that will approve you. In either case, knowing what you can and can’t do in the real estate world will save you from disappointment in the home hunting process.