For any home buyer, getting a mortgage pre-approval is an extremely important step in the process. This is the method a lender uses to assess your finances and decide the maximum amount of money you can borrow for a mortgage. At this point, you are still only pre-qualified to borrow, but preapproval is a much deeper dive into your finances, also looking at your credit score balance, income balance, debts and assets. Getting pre-qualified or applying to be pre-approved gives you a fuller picture of,your budget and solidifies your standing as a genuine buyer.
Pre-approval comes with a handful of advantages:
Having an idea of how much money you can borrow will keep your eye on the prize and head you in the right direction toward finding a home that won’t waste any time with wasting energy or disappointment.
Being preapprove shows your potential capability of funding the house, therefore sellers and real estate agents will take your offer more seriously.
With most of the financial vetting done in advance, the loan is typically ready to go faster when you make an offer.
In a competitive market, you can stand out with pre-approval as sellers typically gravitate towards buyers that have already been approved for financing.
Typically the sequence of a pre-approval process involves:
You will have to submit documentation in the form of income (pay stubs, tax returns), credit history, bank statements and information about any debts you have and assets.
The lender that you obtain a loan from will use the information you provide to evaluate your finances and find out your debt-to-income (DTI) ratio.
You have to go through a hard inquiry where your score and history is reviewed by the lender so they know how reliable you are when it comes to being a borrower.
The lender will provide a pre-approval letter once you are approved that details the maximum loan amount and term, including your qualification. It has a validity of 60-90 days generally.
However, there are a number of factors that can impact your pre-approval, which you should know about:
Credit Score: Gives you better access to loans with more favourable terms and greater borrowing limits.
Debt-to-income ratio (DTI): on a conventional loan lenders like to see your DTIbelow 43% but some pursue higher ratios with compensating factors.
Employment Background: The approval process requires that you have a stable job and work history.
To offset the risk of lending, a bigger down payment increases your chances for approval and possibly grants you a lower interest rate.
To increase the likelihood of pre-approval, here are some tips:
Care Check Report: To Apply and Pay Prior to Loans Applicants
Do not take on new de: During the pre-approval process, wait to make big purchases or open additional lines of credit.
Provide Correct Information: All documentations should be completed in order to avoid any delay.
Shop Around: Different lenders have different rates, so compare rates and terms.
Mortgage pre-approval works like an amplifier for homebuying: bringing clarity, confidence and a competitive edge. Investing the time to pre-approve yourself will set you up as an organized and determined buyer, allowing for an easier homebuying process. If you are ready for the next step start your pre-approval process with a trusted lender today.
