22 May Pre-approved mortgages
A pre-approved mortgage is also referred to as a pre-approval. Any good mortgage professional will tell you that your house hunt shouldn’t start with a call to your realtor; it should start with a call to a mortgage professional who will work with you in order to obtain a mortgage pre-approval. The reason seems obvious: how can you shop for a property when you don’t know how much money you have to spend or, more importantly, how much a lender will loan you for your mortgage?
That’s what a pre-approved mortgage is: It is a tentative promise from a lender that it will loan you a certain amount of money for the purchase of real estate, for a certain term and at a certain interest rate. In a pre–approved mortgage process, the lender will base its decision upon your income and credit score.
Normally, your housing costs – including your mortgage payment, taxes and utilities – should not be more than 32% of your gross household monthly income. Having these numbers in mind, you should have an idea of how much of a mortgage you may be pre-approved. The pre-approval process can start anywhere up to 120 days before you want to buy a home, depending on how long the lender’s pre-approval is guaranteed. It’s the first step to getting a mortgage, and although it typically doesn’t take that long to complete, another benefit to doing it early in the process is that you’re not simultaneously dealing with offer negotiations, when every moment can be crucial.
Some lenders will give you written confirmation or a certificate as proof of pre-approval. It’s important to note that when you’ve been pre-approved, the only thing that’s being guaranteed for the 60-120-day period is the interest rate. The process vets you as a borrower, but it is not a guarantee that you will get a mortgage, or the amount that you will be loaned, because property details have yet to enter the picture.
What are some advantages of a pre-approval? For starters, it’ll speed up the home buying process. It will also give you a much more accurate assessment of the amount of money that you’ll have at your disposal for your property purchase. A pre-approval will show to your realtor that you’re serious about buying a home, and it will do the same to sellers, which means that the offer that you end up presenting may be stronger than a buyer’s offer without a pre-approval. To a seller, a pre-approval means that your financing is less likely to fall through than it would be without a pre-approval, and in a strong real estate market, every advantage helps.
Once you have a mortgage pre-approval you’ll have to watch out for anything that may affect your cash flow in the near future, such as acquiring any new debt or – obviously – losing your job. Even changing employers can affect your approval, so you want to keep your financial picture as stable as possible. If all remains the same from the time you got your mortgage pre-approval to the time you’ve made an offer on a property, then you’re halfway to your loan.