Mortgage Pre-Approval – How to Get the Home of Your Dreams
Unless you’re one of the few who are in the fortunate position of being able to get the home of your dreams for cash, there are some important things you need to know about the financing process. Find out how getting a pre-approved mortgage can help you get the home of your dreams.
First, understand that there are significant differences between being pre-qualified and pre-approved for a home mortgage. It’s true that neither status gives you any absolute guarantee that you will be granted the financing you need, but if you are serious about buying a new home then pre-approval is the better way to go.
Pre-qualification is a quick, simple and usually free process. Typically all you need to do is to go online or call your potential lender or mortgage broker and give them some basic details of your financial status, such as income, assets, regular outgoings, credit card and other debts. In return you will receive an indication of the amount you may be able to borrow. Lenders and brokers will also be happy at this stage to explain the various types of mortgage, which may be available to you.
Pre-approval is a more involved procedure, which will involve a formal application and credit check, and may require the payment of a fee (depends on the financial institution). You will also need to supply your potential lender with documentation confirming your financial position. This will normally include the following:
- Proof of income for the previous two years, such as W-2 statements, pay stubs and tax returns.
- Bank, brokerage or investment account statements demonstrating that you have sufficient funds for the deposit on your new home (this may be as much as 20 percent of the purchase price depending on your lender).
- An adequate credit score.
- Proof of employment, or detailed business records if self-employed.
Having a good credit score is particularly important for pre-approval. According to Ellie Mae Inc. (www.elliemae.com), an independent information and service provider for the mortgage industry, 67 percent of loans completed in March 2016 were granted to borrowers with a FICO (www.fico.com) score of more than 700. A mere 12 percent were granted to those with a score of less than 650, and the average credit score for all closed loans was 722.
So, before paying any fee to through a pre-approval process, it is well worth using one of the many free services such as creditsesame.com or creditkarma.com, which will give you an indication of your FICO rating.
Pre-approval means that you will receive from your lender a written (but conditional) undertaking to provide a specific amount of financing. Depending on the type of mortgage, you may also be able to guarantee yourself a definite interest rate and know exactly what your monthly payments will be.
As much as it can be great fun to search for properties on Zillow, Trulia or similar sites, you risk wasting a great deal of time unless you know how much you can afford. Finding the perfect home is often a lengthy and highly stressful process, but as disappointing as it may sometimes be, you can save yourself many hours and potential heartache by eliminating from your searches those properties, and perhaps even whole neighborhoods, which you now know to be clearly beyond your means.
Pre-approved status can also give you a significant advantage once you have identified the home you want to buy. Most sellers want above all to sell their property as quickly and easily as possible, provided of course that the price is acceptable. So, when competing with other buyers who may not yet have financing in place, you are far more likely to get the home of your dreams if the seller and Realtor know that you are pre-approved for a mortgage, and able to offer or even exceed the asking price with confidence.
So although there is some cost and effort involved, if you are serious about purchasing a home it’s definitely worth getting pre-approved. Of course it can’t guarantee that you’ll find your dream home, but it will go a long way toward convincing sellers that you are a serious buyer, and this alone will put you way ahead of many of your competitors.
If you have questions about free pre-approval, pre-qualification, mortgages or the first-time homebuyers program, feel free to call Members Plus Credit Union at 781-905-1500 to get your questions answered. Members Plus Credit Union also provides free pre-approvals for those seeking to buy a home.
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