Buying a home is one of the most important goals many people have in their lifetime. Having enough money for the purchase or the deposit is essential. However, knowing the steps in buying a home is equally important, especially if you will need a mortgage. Nonetheless, don’t wait until you have found your dream house to apply for a mortgage loan. You’re likely to lose the home to someone else as you struggle with the application process. Thus, before you go shopping for a house you should get pre-approved for a mortgage.
Applying for a mortgage pre-approval with different lenders is better than picking just one. You not only have the opportunity to explore the program options but also compare loan costs and customer service. Mortgage approval is a complex process and picking the best lender on the list makes easier for you. However, three lenders are enough to avoid wasting your time and money. In addition, remember that too many lenders doing “hard pull” on your credit info can negatively affect your credit score. The advantages of getting a mortgage pre-approval from multiple banks include:
To know what you can afford
At any point, there will be a lot of houses on sale but not all will be within your budget. When you don’t know or overestimate the amount of money you can get in a mortgage you are likely to waste time checking houses you cannot afford. A pre-approval saves you from that. It tells you how much the lender is willing to loan you towards the purchase, and also allows you to determine how much you can afford. Find a house that costs less than your loan limit unless you have saved at least 20% for the deposit.
Avoid losing your dream home to another buyer as you sort out the mortgage
When you find the perfect house you become emotionally attached to it. You will have this perfect picture of how great it would be to raise a family there and the home improvement projects you can undertake to make it better. However, your ideal home can be lost to another buyer if you don’t have enough money to pay for it or to make an offer.
Buyers and realtors will take you seriously
Unless the buyer is sure that you can actually afford the house, he or she won’t take you seriously. Even realtors will be more willing to go the extra step in making sure you get the house when they know you have enough money to make the offer immediately you find the ideal home.
More negotiating and bargaining power
Each lender will have different terms and rates. These factors are crucial when picking the lender you’ll get the loan from. You should go through the terms and conditions from the different lenders to know what you should ask for from the lender you end up choosing. This knowledge gives you the upper hand in negotiating for a better deal and even bargaining for better rates.
Confidence in your decision
Settling for the first lender who pre-approves you for a mortgage isn’t the best idea. You’ll always wonder whether you could have found a better deal had you kept on looking. A mortgage is a huge commitment and having second thoughts isn’t a burden you want to carry in such a case. Therefore, you should explore all your options before making the final decision. It gives you peace of mind knowing you did your best. Otherwise, it will always be a “what if” game going forth, and you are better off without such regrets.
How to Get Pre-approved for a Mortgage Easily
Save for down payment
The higher the down payment the better the loan terms. Aim for at least a 20% down payment for the best outcome. If the deposit you put down is less than 20% of the total cost of the home you will be required to pay PMI. This increases your monthly mortgage payments.
Don’t add more credit lines after pre-approval
The preapproval decision is made as per your current credit info. Opening more accounts changes your financial situation and even your credit score. Large purchases will also affect your debt-to-income ratio which would mean the lender will have to do a new evaluation to determine how much loan you will get.
Continue paying your bills
You shouldn’t default on your regular bills for the sake of your payment history. Falling behind will ding your credit score which might even see you lose out on getting the loan.
Just because you have the preapproval letter from a certain lender doesn’t mean you have to settle for them. Continue shopping around for better rates and best terms. Should you find a better deal, feel free to go for that.
A mortgage pre-approval is quite different from actually getting the loan. The lender will have to recheck your employment, income, bank statements, and even credit before the closing. However, a mortgage pre-approval means that it won’t take long before the loan is processed once you identify the home you wish to purchase.
Big purchases, new lines of credit, closing accounts or taking out new loans after the pre-approval will delay the loan processing. Consequently, the closing will be derailed. Also, you need to bring to light any skeletons in your financial closet. The lenders are quite thorough when gathering information about your financial history. Being upfront will save you a lot of time.