In our current blog series, we are walking through the 7 key steps involved in buying a home. We’ve already talked about the importance of getting your finances in order and hiring a Realtor®. Now, we will dig into the home loan application process. More specifically, we want to talk about the value of getting preapproved for your mortgage loan.
A Devastating Scenario
Imagine this common scenario. You find the home of your dreams. You make an offer. Your offer is accepted by the seller. You are over the moon with excitement. Then, you apply for your mortgage loan and are denied. Maybe you don’t qualify for a home loan at all, or more likely, you might not qualify for as much as need to buy that dream home.
This experience is devastating, and we’ve seen it happen time and time again with home buyers who aren’t prepared. Of course, this goes back to the first step in this series about getting your finances in order. If you have high amounts of debt, low or inconsistent income and/or a poor credit score, you might find it harder to qualify for a loan—or you may only qualify for a certain amount that won’t give you as much buying power.
This is why it is so beneficial to get pre-approved for your home loan. It’s an easy process and it will completely change the way you can approach your home search and make purchase offers.
7 Steps to Consider When Purchasing Your Home
Check this Guide Out! It is a must read if you are about to buy a house.See Guide
Mortgage Preapproval vs. Prequalification
First, let’s review the difference between a preapproval letter and a pre-qualification. Sometimes, these terms are used interchangeably when people talk about mortgages. However, they are very different. A mortgage qualification is a very simple process where the lender only looks at some basic information provided by the applicant. The lender can use this info to provide a general pre-qualification letter with a rough estimate of what you might be qualified to borrow. It is not fully verified. The amount is not set in stone.
Securing a preapproval letter requires a more comprehensive process. For this, a lender will verify your income and assets, perform a credit check and complete some preliminary underwriting steps to give you a more accurate assessment of your mortgage loan eligibility. The preapproval letter will more specifically outline the preapproved loan amount, specific loan program, interest rate and down payment for which you are approved.
It’s important to understand that preapproval does not imply final mortgage loan approval, as things can change over the course of the home search and lending process. However, it is a much more solid understanding of your loan eligibility and it will also help streamline the final loan underwriting process during the real estate transaction.
The Benefits of Mortgage Preapproval
Getting preapproved for your mortgage loan is a vital step today, especially in a competitive seller’s market where homes are getting many great offers and buyers. Your preapproval letter will tell you the maximum loan amount for which you are qualified. This helps you narrow down your home search and avoid looking at houses that you cannot afford.
The mortgage preapproval will give you more buying power when it comes time to make an offer on a home you are interested in purchasing. Sellers may get many offers. One thing that they are usually looking for is that preapproval letter because it shows you are a serious and qualified home buyer. Because you are already preapproved, you present less of a risk during the final sale. Your loan is very likely to be approved with minimal complications, and this is obviously very attractive to a home seller who wants to avoid their real estate transaction falling through because the buyer’s funding is shaky.
Streamlining the Mortgage Approval Process
Last but certainly not least, getting pre-approved at the beginning of your home buying process will make the end of the process go so much smoother. The lender has already reviewed your financial situation and approved you for a certain amount and loan terms. Unless something dramatically changes by the time your loan is going through final underwriting and approval (lost job, increased debt, credit score drop, etc.), you will be in prime shape. Your loan will process quicker and the entire transaction will be completed with minimal risk of conflict.
These are just some of the advantages of getting preapproved for a home loan. If you are ready to start your home search and want to get preapproved for your mortgage, contact Moreira Team today to get rolling on your preapproval application.