Purchasing a home is an exciting time. It’s one of the biggest purchases anyone makes in their lifetime, and the average person only purchases three homes in their lifetime, which means the process can be daunting every time.
One of the best ways to streamline the process – and even make the purchase quicker – is to get a mortgage pre-approval. While many people understand the benefits of working with a realtor in the early stages of homebuying, fewer understand that it’s also important to begin working with a lender. Ideally, you should be working with one before you even start looking for a home to purchase.
While realtors understand the market and the process of putting an offer in that will secure a home, the mortgage lender often holds the key to completing the home purchase. While it isn’t fun to discuss your financial history, a mortgage lender can often give you candid advice regarding what you can afford and the best type of loan to meet your needs. Knowing this upfront can save you heartache later in the process as it will save you from finding the home of your dreams only to discover that it is out of your budget or won’t work with the loan type you can secure.
Meeting with a mortgage lender doesn’t just give you insight into your finances; they can also help you start the mortgage pre-approval process. And this should be one of the first steps you take in homebuying. A mortgage pre-approval often comes in the form of a lender and indicates how much a mortgage lender is willing to allow you to borrow to pay for a home.
This pre-approval is often important as it indicates that the lender is prepared to move forward with your home loan once an offer has been accepted. In most instances, sellers are more willing to move forward with a sale if the offer is backed with a pre-approval. This document shows that you are serious and committed to taking the step of purchasing a home and that your lender is also willing to move forward.
While working with a lender, they may also mention the term mortgage pre-qualification. And while it may be tempting to think the terms are synonymous, they are not. A pre-qualification is a less strenuous process showing a range of financing you may be able to secure once you are ready to move forward with a mortgage application. Pre-approvals require more underwriting and are often taken more seriously.
Getting a mortgage pre-approval can also benefit you by resulting in a lower mortgage interest rate. The process of finding and securing a lender for pre-approval ideally lets you look at different options. And different lenders won’t always offer you the same interest rate. This level of comparison shopping can give you an idea of the interest rate you can secure, the fee structures with the lender, and their timeframe for closing. Having this data before you make an offer on a home is always beneficial.
If you are seeking mortgage pre-approval, there are several ways to prepare for the process:
- Locate and make copies of your financial documents, including your tax returns and W2 statements from the last two years, paystubs from the last three months, current bank statements, and valid identification documentation.
- Pull a credit report. Many mortgage loans require a minimum credit score. For instance, FHA home loans often require at least a 580, while conventional loans usually require a credit score of 620 or higher. If you purchase a home with another person, you will also want to know their credit score.
- Consider your debt. One key factor that impacts your ability to secure a mortgage is your debt-to-income ratio, which looks at your income in relation to your obligated monthly debt payments. Generally speaking, the less debt you have, the better your debt-to-income ratio is, which often means you can borrow more.
- Take a look at different lenders. You can find great information about mortgage lenders online, from friends and family, or by calling lenders. Shopping around is the best way to find the right lender to offer you the most advantageous mortgage terms.
- Apply for pre-approval. Once you have the required documents and know which lender you would like to move forward with, you can officially start the pre-approval process. After that, you can start hunting for the right home for you!
Buying a home can be complex, but pre-approvals can simplify the process and help you secure the home of your dreams. For more information about pre-approvals, contact Mortgage News Channel today!
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.