If you’re hoping to become a homeowner, it is highly likely that you’ll need a mortgage, unless you happen to be an heir or heiress with lots of cash, of course. All prospective homeowners must go through the process of getting pre-approved to see if they qualify for the loan. Sound complicated? New buyers can be understandably overwhelmed by mortgages in general, but knowing how to go about getting a mortgage before diving in is a good first step. Getting pre-approved is not as daunting a task as you might think.
First, you must decide how much you are looking to spend on your future home. This is one of the more important aspects of the pre-approval process, and you are really the best person to determine what you can afford and are willing to spend. You’ll need to define your price range, and don’t forget to factor in money for a down payment. These determinations along with other variables will play a large role in the loan amount that you are eligible for.
Have you heard the terms “pre-qualified” or “pre-approved?” It’s important to know the difference. With a pre-qualification, the borrower and lender have discussed income, assets, and credit, but it is not formally verified. A pre-approval, however, is a formal review of the same things as a pre-qualification, as well as a review of the borrower’s full credit report. Having the pre-approval documentation is better because it is a true representation of the mortgage loan you are eligible for and is often required when submitting an offer on a home.
Get pre-approved and secure your dream home
Next, it’s time for the paperwork. Once you’re ready to start the pre-approval process, you’ll need to fill out the mortgage pre-approval application itself. Make sure you complete it as accurately as possible. The standard application asks for personal information such as financial account numbers and the desired borrowing amount, which is also called the target loan amount. It might seem unnerving to disclose your personal finance information and work history, but this is standard information that lenders use to assure you are financially responsible enough to undertake such a large loan. Working with a lender you trust will make sharing this information more comfortable. After you’ve completed and signed the forms, your lender will need to review and sign them and begin the loan approval process.
When you submit your pre-approval application, the lender will run a credit check to ensure you have good credit. The full report reveals any past credit flaws such as late or missed payments or outstanding credit card debt. Based on your credit score, the lender can see how well you qualify and what your mortgage rate will be. The better the credit score, the better your loan will be.
After you’ve finished your application and it is approved, you can begin to look for a home. Most mortgage pre-approvals are open for 60-90 days and after this time it expires. If your search extends beyond that, simply resubmit your application to refresh this term if you haven’t started the purchase process yet. More often than not, most buyers have a list of homes that they want to look at and make offers on (if all is well on their pre-approval) by the time they get the green light, so they usually they begin the purchasing process within that 60-90 day period.
Although getting a mortgage can sound like a lot of work, understanding what to do before starting your home search will only help ease the stress. The mortgage pre-approval may very well be the most important aspect of looking to purchase a home, as it helps define your price range. There are a few steps to the mortgage pre-approval process, so shopping around and working with a helpful lender you trust will only make the process easier and more productive for you.
This post was authored by Mark Scheets
