The Five Things You Need to Know Before Purchasing a Home. Part 2 - Getting PreApproved
Before you start looking at homes, you should get pre-approved for a home loan. A pre-approval gives you a better idea of how much you can borrow. This gives you a price range so you can look for a home within that range. This will save you both time and money in the long run.
To get pre-approved, you need to find a lender, such as a bank or mortgage company. You will need to provide the lender with financial documents such as W-2 statements, paycheck stubs, and bank account statements. The lender will use these documents to verify your financial status. The lender will also request a formal credit check.
The lender will analyze your income, debt-to-income ratio, credit history, and credit score to determine if you qualify for a home loan and the loan amount you qualify for. The lender will also give you a pre-approval letter to use during the house-hunting process. A pre-approval letter states the amount you are pre-approved for and is valid for a specific period of time (usually 90 days).
Being pre-approved is not a guarantee that you will get the loan. It does not obligate the lender in any way. In order to get the loan, you need to get final approval.
To get final approval from the lender, you will have to go through the full underwriting process, which is more rigorous and can take up to 30 days. This process doesnʼt begin until you have made an offer to buy a home. At that point, you would give your lender a copy of the purchase agreement so they could evaluate you and the property.
Ask your lender to give you an estimate of how much your monthly payment will be, including principal, interest, taxes, and insurance. Determine if it fits within your budget. Just because you can borrow up to a certain amount does not necessarily mean you can afford the monthly payment. Take all your financial obligations into consideration and determine how much you can comfortably afford to pay every month.
A loan pre-approval has four main benefits:
• It helps you identify problems such as too much debt or a low credit score. Finding out about these issues before you begin looking for a house will give you more time to correct them before you try to get final approval for your loan.
• Heal estate agents will be more willing to work with you. It shows them you are serious.
• Sellers will have more confidence that you will be able to obtain a loan to purchase their home.
• It also helps you save time while looking for a house. Once you know how much the lender is willing to lend you, you can shop within that price range.
Getting pre-approved for a home loan gives you a better idea of how much you can borrow. Knowing your price range will save you time while looking for a home. A pre-approval will also give you an advantage over other buyers when making an offer on a home. Getting pre-approved first is the efficient approach to home buying.