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If you've decided to buy a home, the first step you should take isn't necessarily looking online for listings or visiting an open house. Before you do that, you need to estimate how much you might be eligible to borrow from the bank to buy a home. This is called a "mortgage pre-approval" and is the first step you should take when buying a home.
Apply For Mortgage Pre Approval
Many first-time home buyers are confused by the mortgage process. At Landmark Home Warranty, we've always wanted to make buying and owning a home simple and easy, which is why we offer new homeowners free, comprehensive listing coverage as well as helpful guides like this one.
What Types Of Pre Approval Letters Does Better Offer?
When your mortgage is preapproved, it means the credit union or bank has reviewed your finances and credit score and written you a preapproval letter. This letter states how much they will lend you for a mortgage on the house. This does not mean it is a legally binding contract. There's no guarantee you'll get a pre-approved rate, and it doesn't mean you won't be able to get a loan from them if you find another company with a higher rate. However, it is a physical document that you can use to help you stand out when you are looking for housing.
Many first-time home buyers are confused as to why they would get pre-approved for a home if there was no guarantee that the lender would actually lend them a loan. Getting pre-approved to buy a home is helpful for several different reasons:
When you are pre-approved, the bank looks at how much money you make, your credit score and other financial information. They will tell you how much mortgage they are willing to lend you. Having this information on hand and in the actual pre-approval letter can help you find a home in this price range. Once you receive your pre-approval letter, you can show your qualifications and explain what you are looking for to your real estate agent, who can help you find what is best for you.
Since you're looking for a real estate agent, showing them your pre-approval letter and explaining what you qualify for can help them find something in your price range, but it also ensures you're a serious buyer. Putting the pre-approval letter and the home offer together also sets you apart from other applicants who may be bidding on the same home. A pre-approval letter won't automatically make you the best candidate, but it will show the seller that you can afford to buy his home and that your offer won't fail.
Are You Pre Qualified Or Pre Approved For A Home Loan
Before getting pre-approved for a mortgage, you need to find a lender you are comfortable with and one that offers the best rates and terms. It's not an easy process and takes time, but talking to multiple lenders will ensure you find the one that's right for you. Don't just ask questions about their rates and terms, either. Talk to them about customer service, and ask them to explain different processes that may not be familiar to you while speaking. You want to choose a lender that you feel comfortable with and that has great customer service. By the way, if you hire a mortgage broker to work with you throughout the home buying process, they can help you find the best rates and terms and work together between you and the lender to make the process a smooth one.
When calling the creditor, explain your financial situation; what is your annual income, your monthly debt, how much you want to pay on your mortgage each month, what type of house you want to buy, etc.
After speaking with several different lenders, they will prequalify you for a mortgage. This is different from pre-approval. Learn more about the difference between prequalified, preapproved and committed mortgages here.
The lender will give you a rough estimate based on your income and the amount of debt you expect to qualify for a loan.
A Crucial First Step: Mortgage Pre Approval [infographic]
Once you've prequalified with several different lenders, compare their rates, terms, and customer service. Choose the one you want to work with when buying a home. You may also have more than one pre-approval letter for different lenders. Keep in mind that the amount you get pre-approved for is not always the exact number for the actual loan. Likewise, if you have a mortgage broker, they can help you find the best loan for you.
Once you have selected a lender (or a few) that you would like to be pre-approved with, you can begin the pre-approval process. The process is a little more intensive, and the lender looks at every aspect of your financial situation, including your credit report, to determine the most accurate term, interest rate, and amount of a mortgage you might qualify for. Once you are pre-approved, the bank will send you a pre-approval letter that you can use to search for homes in the right price range to include in any offers. Once your offer is accepted, to actually get a loan commitment or full approval, you will have to provide more financial information and the mortgage underwriter will draw up a legal mortgage for you to sign. Again, this may not be the same as a pre-approval letter, but it also means you can continue to search for the perfect mortgage.
Lenders will only pre-approve you if they can prove that you have enough money to pay your mortgage each month. This involves making sure you have a steady job. You can prove this to your loan officer by providing them with your last two years of W2s, tax returns, or your last two pay stubs. Lenders may also call your employer to verify your employment status.
Next, the lender has to make sure you have enough money in the bank to cover the down payment. These are your "assets" and you can prove you have an advance by taking a screenshot of your account.
Why You Should Get Pre Approved For A Mortgage
Lenders will want to know if you will make your mortgage payments on time. A credit report will help them determine whether a mortgage lender trusts you enough to lend you a substantial amount of money. A credit score of 580 is the threshold for an FHA loan, while a score of 720 is the score needed to get the best rate on a traditional loan.
Lenders will need a passport or social security card, your driver's license, and your signature indicating your permission for them to use this information to look up your credit report and create a pre-approval letter for you.
If you are denied, there may be many different factors that prevent you from being pre-approved. Below is a flow chart of reasons why you may not be pre-approved for a mortgage.
Here's everything you need to get pre-approved for your mortgage! Of course, the entire home buying process takes much longer than this little piece, but once you buy a home, make sure to protect your systems and appliances with a home warranty. You can easily repair and replace any failures for less than $100. Get more info and compare plans and prices here.
How Long Is A Mortgage Pre Approval Good For?
Looking to buy or sell a home? Are you a real estate professional looking for helpful resources to educate your clients? These articles will help you through the process of buying or selling a home.
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Enter your information and receive a free personalized home warranty quote. You can customize coverage and pricing to suit your needs. Experience what over 70,000 homeowners already know: A historic home warranty helps protect your home and your budget! An unprepared market. No doubt you or someone you know has experienced this frustration. You peruse the Sunday real estate sections, contact local real estate agents, and visit open houses over the weekend; however, when you find the property you like, your offer is immediately rejected. Why? because you skipped one of the most important aspects
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