When it comes to buying a home, one of the first steps potential buyers should take is getting pre-approval for a mortgage, and it’s never too early to start the process. By getting pre-approved, home buyers will know exactly how much home they can afford. Plus, the pre-approval letter tells sellers that the buyer is serious and already has financing in place to move forward with an offer.
Why is pre-approval important?
Mortgage pre-approval is a necessary step for anyone looking to purchase a home. Pre-approval is basically a promise lenders give to buyers that show how much of a loan the they can manage. This will also provide a snapshot of current mortgage rates and give an idea of how much would be owed monthly. To start the process, lenders look at the buyer’s credit report, proof of income, employment history and possibly bank statements to determine eligibility. After submitting all the required documents the lender will either offer pre-approval or not, and at what interest rate(s). Buyers unsure where to start the lending process can talk to an experienced, licensed realtor or their financial institution. There are also mortgage brokers available who can research different mortgage companies and try to find the best rate.
How credit score impact pre-approval
The higher a buyer’s credit score, the more likely they are receive better interest rates and conditions. Buyers who may need help improving their credit can take steps to raising their score before proceeding in the pre-approval process. The first step is to know the current score. Everyone is entitled to one free annual credit check and can receive a full report by visiting www.annualcreditreport.com. Next, start paying down existing debt with regular payments; paying off any collection balances can quickly increase a credit rating. In some cases, consolidating debts by transferring balances to a new, lower line of credit can be useful. Finally, make sure confirm that the income to debt ratio is under 30 percent. That is the number financial institutions use to determine if someone is more or less likely to default on a loan.
The closing process
After being pre-approved and submitting an accepted offer on a home, the next phase is closing. This is where the realtor and lender will work together to ensure all paperwork is completed in a timely manner so the loan can close on time. The lender will put together the proper documents that need signed and will facilitate transferring funds into an escrow account so everything will be ready for the closing date. Once the escrow account is ready, the last piece is signing all the paperwork. Throughout the process, the buyer’s lender and realtor should be available for questions. If you’re not sure who to direct questions to, we’ve put together this helpful list.
The bottom line is mortgage pre-approval is an important, necessary step in any home buying journey, and completing the process early can better guarantee losing an offer or the sale falling through. The pre-approval process allows buyers to improve their credit score, properly analyze finances, make a good budget and understanding what needs to happens to reach the closing table. No one wants to find a financial surprise when trying to buy a house, which makes pursuing pre-approval sooner than later essential. Don’t hesitate to speak with a representative from a financial institution or experienced, licensed realtor about pre-approvals.