The Mortgage Preapproval Process
Where do you start when beginning your home buying search? A great place to start is to get a mortgage preapproval from your lender.
When a lender issues you a mortgage preapproval, you can start your home-shopping with confidence. In Many cases, home-sellers will require that you submit a preapproval letter with your offer.
Buyers aren’t the only ones who value preapprovals. Sellers like them too, since they help remove doubts on buyers obtaining the financing they’ll need to make good on their offer. A good preapproval letter can give you an edge, especially in situations where the seller has received multiple offers.
Your Credit Report in the Preapproval Process
To obtain a preapproval, you’ll be required to complete a detailed application. Check your credit before submitting your application to see if you need to make any adjustments. The stakes are high: Your credit doesn’t just determine if you can borrow and how much—it also drives the interest rate on your mortgage.
You’re entitled to a free copy of your credit report once a year from each of the three major credit rating agencies. You can request them at annualcreditreport.com.
Your lender will also want to see proof to back up what you entered on the application. For example, you may be asked to provide proof of your employment and salary, as well as tax records and bank and investment account statements.
The Difference Between Pre-Qualification and Preapproval
Pre-Qualification is not the same as preapproval. Pre-qualification is only a preliminary estimate of how much credit you can tap. Though it takes a little more work to get a preapproval, it gives you greater clarity and gives sellers more confidence in you.
The Importance of Not Adding Debt After Preapproval
Don’t destroy your preapproval by taking on new debts or making major purchases that diminish your assets.
The Importance of Not Maxing Out Your Budget
Think toward the future. Set your own home purchase limit based on a monthly mortgage you can comfortably afford, considering other current and unexpected life events. Though your lender may approve you to borrow a certain amount of money avoid maxing out your preapproval budget. Do not become house-poor in order to impress your friends!
The more you borrow, the higher your mortgage payment and the more interest you’ll pay over time.
Keeping Room in Your Budget for Other Costs
A larger home could also mean more money spent on furnishings, décor, maintenance, property taxes and insurance.
You may also want to pursue other financial goals, such as saving for retirement, building a college fund, and leaving room for future purchases.
Contact me for more info on the mortgage process.