Mortgages Part 3: Getting a Mortgage Pre-approval
Before you start driving around and looking at homes with a real estate agent, you should get a mortgage pre-approval. Taking a step back, actually the real first step to buying a house is to request a copy of your credit report. You should know your credit score, the reason for your score, and if needed, how to improve your score.
Once you find out about your credit score, you are ready to talk to a mortgage broker. Or you can simply have the mortgage broker obtain your credit report for you. Just because your credit is bad does not necessarily disqualify you from getting a loan.
What is a mortgage prequalification?
When you talk to a lender, they may give you a prequalification, which is an estimate of how much you could be eligible to borrow based on the information you supply, like your income, amount of debt, and an estimate of your credit score.
Prequalification is similar to you playing with the online mortgage calculators; it does not mean you will get the loan, and your credit history is not checked. Therefore, if you are getting serious about shopping for a house, the prequalification means little, and you will need to get preapproved.
What is a mortgage pre-approval?
A mortgage pre-approval from the lender verifies all the information you provided, and your credit report is run to check your score and history. The pre-approval letter usually includes the maximum amount that you can borrow, based on your down payment amount, current interest rates, and the terms of your loan. It gives you the peace of mind and confidence to shop for a home, knowing exactly how much you can borrow. This way, when you find the perfect house, you can make an offer right away.
Most home seller will not accept an offer unless the buyer has a mortgage pre-approval letter. You can get a mortgage pre-approval by simply talking to a loan officer or applying online, and you are not forced to use that lender for the actual loan.
Remember though, even a pre-approval letter is not a guarantee that you will get a loan. Pre-approval letters are not binding on the lender. Your loan approval is also subject to interest rate changes, any changes in your financial situation (ie. you changing jobs, buying a new car), and the appraisal of the home you end up buying.
Mortgage Guide Home | Previous Article: How much down payment do you need? | Next Article: Types of Mortgages
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