Pre approval of Home Loan
It is advisable to go for pre approval of mortgage loan before even beginning to look for a house for sale. Pre approval involves receiving a written letter from a lender stating the amount of mortgage you are eligible for. This places you in a much better bargaining power as the buyer. The following are the stages that one would undergo when following the process of going through pre approval.
Do Your Research The first one is to gather information on all the available mortgage programs like conventional and FHA loans, the down payment expectations, and the prevailing interest rates. The next step towards finding out how much you can afford to pay per month is to check your income, your debts and your savings. This enables you to know your price range for houses and how much loan you can afford to take. You will also need to do some comparison and get at least three quotes from different lenders.
Check Your Credit To be eligible for the better mortgage rates, one needs to have a good credit score, therefore the need to request for a credit report. Check your full report and contest with the credit bureaus if there is any error. Reduce credit card balances and outstanding debts to improve the credit rating. A five point increase in your credit score can reduce the interest which you have to pay on your home loan by thousands of dollars.
Verify Your Financial Information Banks want you to provide as much evidence for your income, savings, investments, liabilities and assets as possible. Ensure that you have collected pay slips, bank statements, tax returns, and other documents that support the figures you provide when applying for a mortgage. Check each other’s work to ensure all financial information is correct and corresponds with other papers. Describe any concerns or differences with notes for your lender.
Complete a Mortgage Application The mortgage application form involves personal history, work experience, income and tax statements, information about owned properties and other assets, list of debts and other expenses. Ensure you complete every section to the best of your ability to prevent any unnecessary time wastage. Your lender will also require other documents including W2s, pay stubs, bank statements among others.
Secondly, the down payment source should be provided. Besides credit score and debt, lenders consider down payment and its source when providing real estate loans. Conventional loans expect a minimum of 3-5% down and 20% down payment helps the borrower avoid paying for private mortgage insurance. Affidavit of Cash the copy of the statement showing that you have the cash on hand to make the down payment and it may be sourced from savings, investment, gift or other assets.
Get Your Home Appraised Your lender will also schedule an appraisal to determine the current market value of the home to ensure that it is worthy to be funded. Appraisals also help to ensure that a lender does not give out more money than the value of the house. It’s important to note that you will be expected to contribute about $400-$500 towards the cost of the appraisal even if you fail to secure the home.
Await Final Approval Most mortgage lenders will need about 2-3 days to complete your documentation, credit and background checks, calculation of your debt ratios and processing of your mortgage application to approval or rejection. In case of approval, you receive a pre-approval letter containing the details of your pre-approval such as the amount of the loan, the interest rate, and the date of expiration. This letter helps to set you up as a serious buyer.
Move Quickly After You Get Pre Approval A pre approval letter is usually good for 60-90 days but it can be renewed with fresh financial statements. The interest rate and the credit terms are only fixed after you settle on a certain house and your lender reviews the property. With pre approval in place you are sure to make offers and negotiate for houses knowing well that your funding is assured.
Be Ready If You Get Denied If you do not meet the credit score or debt requirements, your pre approval may be denied or your Arthur approval may be less than what you requested. Your lender should be able to tell you what standard you did not meet and what you can do if you wish to apply for a car title loan in the future. Paying off debts, accumulating positive payment records, and raising the credit score might help you become eligible the next time.
Weigh Mortgage Options If the conventional home loan application is rejected, FHA loans need just 3. 5% down payment and VA loans for veterans are 0% down loans. Government backed loans can also provide feasible options though come with rigorous credit score, debt ratio, and eligibility criteria. Other options would be getting down payment assistance from nonprofits or state agencies or your employer, if you are still employed.
This is because the Pre Approval gives your offer more strength and this means that you have a higher chance of winning. It may sound paradoxical to go through the process of pre approval before beginning the house hunting process but it gives the buyer a lot of leverage. Sellers like buyers with their financing in place than those who are seeking financing. Pre approval proves to the sellers that you are capable and willing to buy giving you an edge over the other potential buyers. This can be important if you are aiming at getting a home you desire.
All in all, pre approval should be the first step to take when planning to buy a home this year or the next year. This process involves gathering of documents, completing your application in detail and correctly, and then waiting for the lender approval to go through. Therefore, you must be ready to move swiftly once pre approved to make a good bid on the desired home. It is tiring to go through this crucial initial process but it is worth it in order to own a home.
