When you start your journey to buy your first home you’ll notice there is a lot of information on how to do it. You might feel a little overwhelmed and not sure where to start. Take it from us; the first step is a pre-approval.
What is it?
A mortgage pre-approval is an application which will help you to get a good idea about how much house you may qualify to purchase. You start by gathering your financial data (income, debt, and assets) and giving these details to a mortgage broker who will then compile your information and submit it to several lenders at once. Then the lenders will send back information on how much mortgage they will potentially approve you for and at what interest rate. The great benefit to doing this through a mortgage broker rather than just one lender is that you get access to information from several lenders all at once. It also only counts as one hit against your credit. Getting a pre-approval from one lender after another can be bad for your credit if you submit the applications too close together. In fact, it can actually hurt your credit so much you may no longer be able to get approval from most (or all) lenders.
The best part of a pre-approval is that it’s free and there is no obligation to follow through with a house hunt or a purchase.
Once you have received your pre-approval and if you do want to move forward, the broker will secure the pre-approved interest rate for a short-term period (90-120 days.) This will give you time to find the right property without worrying if interest rates have changed in the meantime. Having a pre-approval ahead of time will show sellers that you’re a serious buyer because you’ll know ahead of time what your price range is likely to be. Houses often sell quite quickly after they go on the market. Pre-approval applications can take a few days to process, which means if you don’t have one ahead of time the house you want to buy may sell before you can even make an offer. Don’t let that happen to you! Get the pre-approval first.
Calculating the pre-approval
Your mortgage broker will compile your income, debt, and assets and with your permission, pull your credit score and submit this combined information to various lenders. Based on these numbers lenders will approve you for specific maximum lending amounts and interest rates.
Using your pre-approval
Your pre-approval will tell you the maximum amount the lender is willing to lend you. With this limit in mind your realtor will be able to find properties specifically in your price range. But do keep in mind that just because you CAN borrow this amount doesn’t mean you HAVE TO or SHOULD borrow the maximum amount. Take a look at your personal finances and decide for yourself how much mortgage you want to handle.
A pre-approval is not a guarantee
A pre-approval is a great tool to help you discover what mortgage possibilities are available to you. However, it is not a guarantee that lenders will agree to loan you the money you want. When you submit your mortgage application the lender may refuse to approve it for one of a few reasons. The biggest reason being that your financial information changed between the pre-approval and the mortgage application. You may have lost your job or started a new one, or accumulated some new debt. Another less likely reason may be that the house you want to buy does not qualify for a mortgage with the lender (such as old homes that are not up to code or homes that are priced much higher than their value.)
All-in-all a pre-approval is an excellent step to help guide your path to your first home! To get started give us a call today or fill out our online pre-approval application below.