In this article
In this article, we want to cover some of the most important things you need to know about getting pre-approved for your mortgage loan. We will also highlight five of the best benefits of a mortgage pre-approval.
Buying a house or condo in the Atlanta area can be both exciting and intimidating at the same time. Unless you have a lot of cash saved up to buy your home outright, you will be looking for a mortgage loan to fund your home purchase. It is important to understand the mortgage lending process and make smart decisions along the way. Mistakes can end up costing you thousands of dollars or put you into a bad financial situation. Good decisions get you in your first home and living the American Dream!
What is a Mortgage Pre-Approval?
When you think you are ready to buy a house, getting pre-approved for your mortgage should be your very first step. It is extremely beneficial to have a mortgage pre-approval letter in hand before you start searching for any properties. Without it, you will have a hard time getting sellers to take you seriously once you start making offers.
Getting a simple pre-qualification from a mortgage lender or bank won’t suffice in today’s competitive home buying market. Pre-qualifications are generally done with very little information about you and your financial health. At best, they are an educated guess by the lender that you are a good candidate for a home loan.
A mortgage pre-approval, on the other hand, is a much more thorough process where the lender will carefully review your financial data to determine if you truly qualify for a mortgage loan. They will run a hard credit check to get your current FICO score. They will review your bank accounts, income and employment history. They will calculate your debt-to-income (DTI) ratio to make sure you make enough income to cover your monthly mortgage payments and other bills.
- For Your Protection
Though it sounds a little scary, the mortgage pre-approval process is done to protect both you and the lender. They are looking to minimize risk and avoid borrowers who might potentially default on their mortgage loans. They also don’t want to lend you more money than you can actually afford.
- Setting Your Purchase Limits
The last point above is important to highlight. One great benefit of getting pre-approved for your mortgage loan is finding out how big of a loan for which you qualify. The lender will give you the maximum amount they are willing to lend you for your home purchase. Keep in mind this is the maximum, so you may not want to spend that much. Make sure you get monthly payment estimates and calculate other base homeownership expenses like property taxes, homeowner’s insurance and mortgage insurance (MIP/PMI).
- Locking in the Best Mortgage Rate
Getting a mortgage pre-approval will also help you time your home loan and lock in the best possible mortgage rate. Ultimately, you want to pay less interest over the life of your mortgage loan. Having your loan pre-approved enables you to lock in a good rate when the timing is right. An experienced mortgage lender will be able to help you navigate this critical step.
- Selecting the Right Type of Mortgage Loan
Another key benefit of mortgage pre-approval is the lender can help you explore your lending options and determine which loan solution is right for you. Whether you are a first-time home buyer or getting ready to move up/down into a new home, you may qualify for a variety of different loan programs like FHA loans, VA loans, USDA loans, conventional loans and jumbo loans. The right loan could net you a lower interest rate, shorter payoff period, lower down payment or other nice advantages.
- More Buying Power
Last but certainly not least, a mortgage pre-approval letter will give you more buying power in today’s real estate market. Unless the home buyer is offering all cash, a ridiculously high purchase price or willing to concede other important contractual issues (such as waiving home inspections), the home seller will be looking for a mortgage pre-approval with any buyer’s offer. This assures them that your funding is on solid footing and you present much less risk of pulling out or having your loan fall through during the closing process.
Pre-approved mortgages tend to close faster and easier. Home buyers who are using a mortgage loan to fund the purchase, but have not been pre-approved, naturally present more risk. Sellers want to avoid these kinds of red flags!
If you are planning to buy a home in the Atlanta area and want to learn more about the mortgage pre-approval process, contact Moreira Team | MortgageRight today to get started.