Posted: 2019-03-19 | Author: April Nye
In a competitive real estate market, one of the best things you can do to position yourself to buy the home of your dreams is to get pre-qualified or preapproved for a mortgage ahead of time. If you ever wind up in a situation where there are multiple offers on a home, sellers will tend to give preference to the buyer who already has financing. In fact, in some cases, they may even take a lower offer when they have more confidence that the deal will go through.
Pre-qualification basically means that you are getting an estimate of what you will be able to borrow to purchase a home. This is an informal process in which you are interviewed by a lending professional about your income, assets, and monthly expenses. This can be done fairly quickly as there are no applications to fill out and no documents that need to be submitted. By being pre-qualified, you have a good general idea of what you can afford when you start shopping for your home.
Pre-qualification vs. Pre-approval
Getting pre-qualified is a good first step in the home buying process as it tells the seller and their real estate agent that you have at least taken some preliminary steps to help determine if you will be able to close the deal. That said, it does not guarantee that you will ultimately be approved for a home loan. To provide greater assurance to a home seller, it is best to take the next step and get pre-approved. Pre-approval is a more in-depth process, but it is well worth the effort.
When a buyer is pre-approved, it means the lender has looked closely at your financial situation; your income, monthly obligations, credit report, job history, etc. to determine how much you are able to borrow to buy a home, loan programs you qualify for, and the interest rate you will be offered.
During the pre-approval process, you will need to submit a formal loan application and extensive documentation regarding your finances; such as income statements, bank statements, tax returns, etc. The lender will also review your credit history to help determine your creditworthiness. For most loan programs, you will need a minimum credit score of 620, maximum debt-to-income ratio of 45%, and the ability to come up with at least a 3% down payment (although there are some programs that allow you to get a mortgage with no money down).
Once you are pre-approved, you will receive approval for a specific amount you are able to borrow for a specified period of time (usually up to 90 days). This allows you to shop for homes on the market that are at or below the amount you are already approved for. It is best to start this process early, so you can take steps to address any issues with your credit or finances that may become stumbling blocks to obtaining the financing you need.
Going Beyond Preapproval
While becoming pre-qualified for a mortgage is better than taking no steps at all, it is far better to go through them more extensive pre-approval process. It is important to keep in mind, however, that not all preapprovals are the same. Some lenders will provide extra assurances for sellers to help give their borrowers a better chance to close on the property.
For example, at Arizona Lending Experts, we provide a pre-approval loan certificate with a $750 on-time closing guarantee to the seller. This means that we are so confident in our buyer’s ability to obtain the necessary financing, we will pay the seller $750 if the loan does not close on time. A guarantee like this can often make the difference between success and failure in a competitive bidding situation. Call us today and a mortgage loan expert will help you through the process.