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Don’t skip this step if you’re planning on buying a property.
If you’re shopping for a shopping for a new home, you need to be prepared. First step – understanding your own finances. Once you have a good idea of your own finances and budget, then move on to step number 2 – getting a pre approval. Basically, this is a process that mortgage lenders use to help you figure out the maximum amount of mortgage you could qualify for, estimate your mortgage payments, and lock in an interest rate for a certain period of time.
The preapproval process involves the lender looking at your finances to determine how much they can lend you and at what interest rate. They will ask for your personal information, various documents, and run a credit check. But keep in mind that preapproval doesn’t guarantee approval for a mortgage – the final approval comes after you make an offer and send that over to the lender. They will look at the property information, and may even require an appraisal to make sure that they’re comfortable with lending the amount that was discussed. Having a preapproval though does increase the chances of you getting your final approval if you followed what they are looking for.
You can get a mortgage preapproval from either a mortgage lender like a bank or a mortgage broker. Lenders lend money directly to you, while brokers find a lender for you. Some lenders only offer their products directly to borrowers, while others are only available through brokers. Mortgage brokers don’t usually charge fees for their services, but instead, receive a commission from the lender. I personally always suggest using a mortgage broker because they have access to different products, and are working for you as opposed to a bank for example where they only have their own product and are working for the bank.
To get preapproved, you’ll need to provide your lender or broker with your identification, proof of employment, and proof that you can pay for the down payment and closing costs. They will also look at your assets, income, and level of debt. Be prepared to provide financial statements, as well as information about any debts or financial obligations you have.
When you’re preapproved, remember that the preapproval amount is the maximum you may get for a mortgage, but it doesn’t guarantee that you’ll get a mortgage for that amount. Also, keep in mind that you’ll need money for closing costs, moving costs, and ongoing maintenance costs.
If a lender refuses your mortgage application, they may be able to approve you for a lower mortgage amount, charge you a higher interest rate, or require a larger down payment or a co-signer.
When getting preapproved, be sure to ask your lender or broker about how long they guarantee the preapproved rate, if you’ll automatically get the lowest rate if interest rates go down, and if the preapproval can be extended. And if there’s anything you don’t understand, don’t hesitate to ask them – this is a huge purchase, it’s important that you understand everything.
So why is getting a mortgage preapproval important?
Having a mortgage pre approval means a few things –
- It allows you to understand what type of home you should be looking at in what price range.
- It sets you up for success – don’t get your heart set on something only to find out you wouldn’t be able to get approved.
- It shows to your realtor that you are actually ready to buy
- It can help in offers and negotiations – for example if you’re in multiple offers, and have a preapproval while the other one doesn’t, you’ll be looked at as a more serious buyer.
- Some sellers won’t even allow showings unless of a preapproval – not everyone wants random people in their home if they aren’t serious in looking for a home.
- It also makes the condition period quicker – if you put on offer on a place and you’re already pre approved, you won’t need to be running around gathering all the documents – everything is ready to go. Whereas, if you didn’t have a preapproval and weren’t able to get all of the requested documents in on time, you could lose out on the property you were wanting.
- If you get a preapproval before looking at homes, it gives you a chance to shop around for the best rate, or find a lender you want to work with. But if you did this after putting in an offer – you’re going to have a very limited amount of time, and might not get the best rate or product.
- You can lock in your rates for up to 120 days – if there are any interest rate increases, you don’t have to worry because you’re already locked in!
As always if you have any questions about getting a preapproval please don’t hesitate to ask, and if you’re already at this step and ready to get preapproved, reach out to a trusted broker through the link below.