While this may seem similar to pre-qualification, the pre-approval process requires submission and verification of your financial history to ensure the most accurate budget to fit your needs.
As a result, getting pre-approved can help determine:
- The maximum amount you can afford to spend
- The monthly mortgage payment associated with your purchase price range
- The mortgage rate for your first term
Not only does getting pre-approved make the search easier for you, but helps your real estate agent find the best home in your price range. Temptation will always be to start looking at the very top of your budget, but it is important to remember that there will be fees, such as mandatory closing costs, which can range from 1 to 4% of the purchase price. Factoring these into your maximum budget can help you narrow down a home that is entirely affordable and ensure future financial stability and security.
Getting pre-approved doesn’t commit you to a single lender, but it does guarantee the rate offered to you will be locked in from 90 to 120 days which helps if interest rates rise while you are still shopping. If interest rates actually decrease, you would still be offered the lower rate. Another benefit to pre-approval is that, when it comes time to purchase, pre-approval lets the seller know that securing financing should not be an issue. This is extremely beneficial in competitive markets where lots of offers may be coming in.
PROTECTING YOUR PRE-APPROVAL
- Refrain from having additional credit reports pulled once you have been pre-approved
- Refrain from applying for new credit, closing off credit accounts or making large purchases until after the sale is complete
- Be prepared to show a paper trail – any unusual deposits in your bank account may require explanation. Also, if your down payment comes from savings, the bank will want 90 days of statements to ensure the funds are accounted for.
Published by DLC.