You are ready to take the plunge into home ownership. You’ve already started browsing the home listing websites and have put together your “must have” list. But if you are like many first-time home buyers, you may not have thought that much about your mortgage. Find out why getting pre-approval now is a good idea, and what could happen if you skip this very important step.
What is Mortgage First Approval?
Mortgage First approval is a mortgage screening process in which the lender you select reviews your information and promises to approve a specific loan amount if you apply within a set time period. This is not the same as being pre-qualified.
Getting pre-qualified is a fairly easy process where you tell your bank or lender your overall financial situation – including assets, income, and debts – and the lender tells you what kind of terms you can expect in a mortgage. Pre-qualification may be useful for first-time home buyers who need help figuring out what to expect and what they can afford. But because the lender doesn’t investigate what you tell it, there is no promise involved.
With Mortgage First approval, on the other hand, you will be asked to complete a mortgage application and provide documents to prove your assets, income, and debts. The lender will then do a financial background check and run your credit score. Based on these factors, the lender will tell you the specific amount it will approve for your mortgage and quote you an interest rate range.
Why Bother with a Mortgage First approval?
Getting pre-approved for a mortgage may seem like a lot of hassle before you have even found a home. But if you wait until you are ready to make an offer, it might be too late.
Avoid Getting Over-Committed
Because a pre-approval letter is specific about the amount of the mortgage, as well as the fees, and interest the lender will charge, it provides you a clear picture of your financial future. You will know whether you are expected to provide private mortgage insurance (PMI), and how much you will need to pay up front. All that information helps you make sure you won’t be in over your head when the mortgage papers are signed.
Sellers’ Agents Are Looking for Pre-Approval (Mortgage First Approval)
In a competitive real estate market, accepting an offer with no secure financing is risky. To make sure there are no surprises at closing, sellers’ agents look for pre-approval letters attached to buyers’ offers. If you have only been pre-qualified, there is still a chance your lender will find details in your financial history or credit report and deny your mortgage. Rather than take that chance, many sellers’ agents will say no to an offer that isn’t backed by pre-approval.
Getting pre-approved for a mortgage should be at the top of your home-buying list. Before you start touring for the home of your dreams, fill out an online application, so you know the money will be there when you find it.
