What Is Pre-Approval?
Pre-Approval
Business Insider explains: “In a pre-approval, the lender tells you which types of loans you may be eligible to take out, how much you may be approved to borrow, and what your rate could be.”
Getting Approved
It gives you critical information about the home-buying process to help you understand your options and what you can borrow. A lender examines your finances as part of the pre-approval process to determine how much they will lend you. Your lender will then provide a pre-approval letter to help you understand how much money you can borrow. This can make it easier when you go house hunting because you'll know your overall numbers. And, with higher mortgage rates affecting affordability for many buyers today, knowing your numbers is even more critical. The lender will break down your monthly payments based on insurance, taxes, and rates so you have a clear idea of what you can afford and your comfort level.
First step Toward home ownership
It is a crucial first step toward a home purchase. Pre-approval demonstrates that you are a serious buyer and that home sellers will take your offer seriously.
You Offer Will be Solid with a Pre-Approval
Pre-approval can make a seller feel more confident in your offer because it demonstrates that you are serious about purchasing their home. According to a recent Forbes article:
“From the seller’s perspective, a pre-approval letter from a reputable local lender often can make the difference between accepting and rejecting an offer.”
This demonstrates that, while you may not face the intense bidding wars seen during the pandemic, pre-approval is still essential to making a solid offer. According to Christy Bieber, Personal Finance Writer at The Motley Fool, it may be the essential part of making an offer:
The fact that a pre-approval gives you a better chance of getting your offer accepted is undoubtedly the most important reason to complete this step . . .”
Mistakes to avoid after you have gotten your pre-approval and are ready to make an offer, you can lose your dream home if you go to the following:
Making large purchases: Big-ticket purchases, such as buying a new car or expensive furniture, can increase your debt-to-income ratio. This may cause lenders to reconsider your loan application, which could indicate that you may struggle to make your mortgage payments.
Applying for new credit: Opening new credit accounts, such as credit cards or personal loans, can negatively impact your credit score and raise concerns for the lender. This may lead to a reevaluation of your creditworthiness and jeopardize your loan approval.
Missing credit card or loan payments: Late or missed payments on existing debts can significantly damage your credit score, making you appear at a higher risk to the lender. Maintaining timely payments on all your accounts is crucial to ensure a smooth loan approval process.
Depositing large sums of cash into your bank account: Lenders need to verify the source of your funds to ensure that they are legitimate and not borrowed. Sudden, large cash deposits can raise red flags, leading to additional scrutiny and potential delays in the loan process.
Switching jobs: Lenders prefer borrowers with a stable employment history, demonstrating consistent income and the ability to make mortgage payments. Changing jobs during the loan process can make it difficult for the lender to verify your income, potentially causing delays or loan denial.
Co-signing for another loan: Co-signing a loan for someone else, such as a friend or family member, can also impact your mortgage application. When you co-sign, you assume responsibility for the other person's debt, which can increase your debt-to-income ratio. This added financial obligation may lead lenders to view you as a higher risk and could affect your loan approval, terms, or interest rate.
Always consult your loan officer or mortgage professional if you have any concerns or questions about your situation. They can guide the best action to ensure a positive outcome in your home-buying journey.
When embarking on the journey to make the most significant investment of your life, having an expert is crucial. Our dedicated professionals are here to provide the guidance and support you need, ensuring a seamless and successful home-buying experience.