What ALL Homebuyers Should Know About Getting Pre-Approved for a Mortgage
Home buying doesn’t have to be a stressful process, even if you’re in a hot market. Homes can go fast and everyone is looking for a competitive edge to secure the home of their dreams. One way to get a leg up on other buyers is to get a pre-approval letter, but not all letters are created equal. If you’re looking to buy a home and want to be considered a serious buyer, a mortgage pre-approval letter is a must-have. Here are the reasons mortgage pros feel some pre-approval letters are better than others.
Not all pre-approval letters are equal
The terms of a pre-approval letter can vary across lenders, but the basic concept of a pre-approval is that a financial institution says it is confident in giving you a specific loan amount. Determining that figure is based on a variety of factors, for example - income, credit, job and work history, any other debts (e.g., credit cards, car lease, etc.) and the term limit of the loan (e.g., 15-year, 30-year, etc.). Yet not all lenders do a thorough examination of your financial history before providing pre-approval letters; some do not even check a borrower’s credit history. The reality is you can get a pre-approval letter from almost anywhere these days. In fact, you can get a letter online in a matter of seconds. But just because you can get one anywhere doesn’t mean they’re all the same.
When a lender doesn’t verify the right types of financial information it’s bad for the borrower and the real estate agent. It gives the borrower a false sense of security and when they apply for the loan they may be rejected. Many of the services that are found online do a superficial job of evaluating the credentials of the borrower and, while you can still get a pre-approval letter, it won’t give you the same competitive edge as a pre-approval with a more thorough look. Real estate agents and many sellers are wary of pre-approval letters from lenders they don’t know or don’t trust. When you have a pre-approval from a familiar, trusted bank, you have a distinct advantage over buyers with pre-approvals from questionable sources.
The benefits of having an accurate number
Another important reason to get a pre-approval letter from a reputable lender is so you get an accurate sense of how much money you can borrow. A proper lender will not only look at your financial history but also at your current income and how much you’re already paying out in rent and bills every month. PeoplesBank mortgage consultants do a thorough check before we validate an amount so our clients don’t waste time looking at homes they can’t afford. But when they do find the perfect home in their price range, they can make an offer on the spot and both the real estate agent and sellers know they are a serious buyer.
The right lender will sit down with you to determine what type of home loan best suits your situation, as well as describe the features and benefits associated with various mortgage options. They will also educate first-time buyers on the additional costs of homeownership, home maintenance and additional utility costs. These are things that should be factored in right from the beginning so the borrower doesn’t end up not having enough money every month. The mortgage bill is just one of the many costs of owning a home and especially for people who were previously renting it’s important they consider how much more they may need to pay in property taxes, utilities and upkeep.
A good pre-approval letter helps at closing too
The last and most exciting reason to get a pre-approval letter from a reliable source is that it can streamline the closing process. Pre-approved buyers have established a relationship with PeoplesBank and know more of what to expect in terms of qualifying for a mortgage. While getting pre-approved doesn't eliminate the possibility of delays before closing, it can reduce the possibility of surprises involving your ability to get the loan you need.
The best advice to anyone who is ready to start looking at homes is to get your financial house in order and your paperwork ready. Then sit with a trusted lender to get a pre-approval letter that puts you in the driver seat.
For more information, contact a PeoplesBank Mortgage Consultant.