Get preapproved before you start looking for a mortgage loan
Thursday February 4, 2010
Obtaining a mortgage loan might be tough these days. Therefore, while shopping for a new home, its better you become pre-approved prior to beginning your search or making an offer to a home seller.
A pre-approved mortgage loan signifies that a lender has already evaluated your income, assets and debts to confirm that you can be eligible for the home loan you're looking for. It proves to the home seller that you're sincere about purchasing a home and can pay off the loan responsibly. This gives you a better position for negotiations.
Becoming pre-approved also implies that you have qualified a higher stage of lender examination than someone who has just been prequalified. Prequalification just suggests the lender feels that you can qualify for a home loan based on your finances as you explain to them. A preapproval denotes that the lender has substantiated it.
Understand how much you can borrow
A preapproval offers many benefits for someone who's searching to buy a home. Specifically, it enables you to understand how much you can borrow based on your income and debt level so that you can find out what price range of homes you are eligible for. This makes the home buying process simpler by allowing you to target areas within your price range.
Becoming preapproved also ensures that you can take out a home mortgage loan when you get a home within a price range. Hence, you don't need to bother about wasting your money on things such as an appraisal or application fees, which can take place if you're refused. It also enables you to compare loan products from various lenders to find out which one is most suitable for your requirements.
What do you need to become preapproved?
In order to be preapproved, you'd have to submit the documents given below to a prospective lender:
- Paycheck stubs to establish you're working at present
- Your income tax returns and W-2s for the last 2 years
- Latest bank statements
- Proof of other types of income such as child support, investments or a second employment
- A letter permitting the lender to get your recent credit report though the bank would probably have a regular form for this.
Preapproval doesn't lock in an interest rate
A preapproval would delineate the usual terms and conditions of the loan you become eligible for. However, it can't lock an interest rate for you. Interest rates vary on a day to day basis. Since it might take many weeks or even months to locate a suitable property, interest rates can increase or slump considerably between the time you get preapproved and the time you're ready to send an application for the loan itself. You also wouldn't know precisely what interest rate you would get.
One thing you should keep in mind is that becoming preapproved doesn't result in making a commitment to a particular lender. When your purchase offer is approved, you can still shop around for other lenders to get the best possible offer prior to committing.
Your pre-approval letter only has a limited duration - they're usually beneficial for just 60 to 90 days. You can easily become approved once again if you haven't identified a home by then. However, lenders still wish to check to ensure your employment conditions and other important factors haven't changed.