In 2021, around 23.3 million people applied for mortgage loans. Of course, only some loan applications ended with a loan. But the process always begins with an application.
You can apply for a conventional mortgage with the lender of your choice, but have you considered applying for pre-approval first? A pre-approval doesn’t guarantee a loan, but it’s a helpful step when you want to buy a house.
So what does the pre-approval process include, and what are the benefits? Here is a guide that explains the primary benefits of getting preapproved for a conventional mortgage.
Preapproval Reveals That You Qualify
Do you understand what a mortgage pre-approval is and why you need it? Unfortunately, many borrowers don’t understand these things. But you’ll need to know before you contact mortgage lenders for a loan.
Getting preapproved begins by submitting a loan application to a lender. You can do this with all types of mortgages, including conventional mortgages.
Next, the lender will review the application. This process is in-depth and requires most of the same steps as lenders complete before closing on mortgage loans.
During this process, the lender will evaluate the following things:
- Income and job
- Credit score
- Financial state
Mortgage lenders check these things to determine if a person meets the loan requirements.
For example, the lender might require a specific credit score. If your score is less than the required score, they won’t preapprove the loan.
However, the lender will give you a pre-approval letter if your circumstances meet their requirements. Therefore, the first reason you need it is to ensure that you qualify for a mortgage.
If you don’t qualify, you’ll still have some options. For example, you could apply for a different loan type or with a different lender.
It’s Helpful for Viewing Homes for Sale
When you’re ready to buy a house with a mortgage loan, you can choose a real estate agent. This agent helps you find homes to view and shows you these homes.
However, an agent will ask for a few things before scheduling home tours. First, they’ll ask for your pre-approval letter. Showing this letter proves you’re a qualified buyer. Most agents require this for all buyers.
Next, the agent will ask about your budget. While the pre-approval letter states how much you can borrow, it doesn’t indicate how much you want to spend. Therefore, your agent will ask about your budget.
Finally, they’ll ask about your desires in a home. For example, what are you looking for in a property? Do you have specific needs, such as size or location?
The agent uses all these details to find homes for sale that might be right for you.
It Tells You the Loan Terms
Your lender will give you a pre-approval letter if you qualify for a loan, and this letter tells you several critical things. The primary thing you’ll learn is the loan terms.
You can review these terms to decide if you like them. You can continue mortgage shopping to find a better loan if you don’t like them.
So what information can you learn from your pre-approval? The first thing is the loan duration. This letter will state how long the loan lasts.
Mortgage loans come with various durations, including 15 years. However, you should compare a15 vs. 30-year loan before deciding which you want.
Next, it will state the mortgage rate in terms of a percentage. This letter locks your rate for a specific time, which might be 60 days or longer.
Your mortgage rate affects your costs and payment amount. It also affects the interest you’ll pay during your mortgage loan. Again, you can shop around for mortgage rates if you think you can find a lower rate.
Finally, the letter tells you how much you can borrow. You don’t have to borrow the full amount, but the lender will only issue the amount listed.
You’ll Discover How Much It Costs
Getting a mortgage pre-approval is also helpful in learning about the costs of getting a loan. Loans aren’t free, but the costs vary by lender.
Your pre-approval shows how much your mortgage payments will be if you borrow the full amount the lender approved. Of course, your payments will be lower if you borrow less money.
Secondly, you’ll learn how much money you need to put in as a down payment. Conventional loans generally require a 20% down payment.
Lenders base the down payment by multiplying the 20% times your home’s purchase price. If you don’t have enough for the down payment, you might consider some options for coming up with the money you need.
Additionally, the lender might accept a lower down payment in exchange for paying private mortgage insurance (PMI).
Finally, you might learn more about the loan closing costs the lender charges.
It Reduces the Work of Getting a Conventional Mortgage
Applying for a mortgage is a process. In fact, it takes lenders a few days or more to respond to a loan application. Lenders have to verify a person’s income, job, credit, and financial state before deciding how to respond.
So one additional benefit of getting preapproved is that it saves time when you find a house to buy. The lender will have all your information already, making it easier to process and evaluate these things.
You can close on the home loan purchase faster if you get preapproved before shopping for a home.
Learn More About Preapprovals by Contacting a Lender
Getting a conventional mortgage is one of the best loan options to pursue. You can talk to a lender to learn about the application process and how to apply for pre-approval.
Contact us at the Mortgage News Channel to learn more. We can help you find the right mortgage loan for your situation.
At 7th Level Mortgage, we are an experienced team of mortgage professionals based out of New Jersey and serving the east coast from Pennsylvania to Florida, including Delaware and Maryland. We have won numerous awards for our excellent professional work and reputation with clients for being extremely diligent, accessible, and hands-on throughout the entire mortgage process.