For a lot of people, buying a home is a huge undertaking that can seem like a daunting task. It can be a big step to put aside money for a down payment and then try to find a home that fits and suits your needs.
One of the first steps in the home-buying process, and one that can make things a lot easier, is getting preapproved for a mortgage. This occurs when a lender checks your credit history and gives you a loan estimate in return. This lets you know the types of homes you can afford and gives you peace of mind that you will have support from the bank.
Here are five things you should know about the preapproval process.
1 .It is important to get preapproved.
A preapproval lets you understand what you can afford so you are not wasting time and energy looking at houses that are unrealistic. Purchasing a home in line with projected monthly payments gives you the best chance of resting comfortable because it is financially feasible. It also gives you a chance to put extra money towards an emergency fund, so you can make home improvements.
2. There is a difference between preapproval and prequalification.
A preapproval lets lenders know what you are able to qualify for by using a financial paper trail. On the other hand, prequalification is not a hard check of your financial situation, so it is not a concrete concept to sellers and realtors.
3. Make sure your credit is in good shape.
A preapproval is usually valid for 60-90 days, and you could get preapproved for a lower rate if your credit score happens to increase in this period. It is not a bad thing to be preapproved multiple times because it can set you up for a lower interest rate if your credit gets better.
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4. Organize all of your documents.
This will make the process go smoother. You should find information such as pay stubs, W-2s, income tax returns, and bank statements to prove your financial history and show regular income. Those who are self-employed might need to provide more documents. This could include various business licenses, official business bank statements, and comprehensive tax returns.
5. Follow these tips for a good pre-approval outcome.
You should also stay up-to-date on any bills and recurring expenses to keep your credit score up. Failing to do this can have a huge impact on your credit score which can severely alter the preapproval process.
Overall, keep in mind that getting a preapproval does not necessarily mean everything is set in stone. Mortgage lenders are under no obligation to give you a loan even if they have given you preapproval. Circumstances can change on either side that makes the possibility of a concrete loan go away.
If you credit score or income has changed for the worse, you might lose a preapproval or have to go through a process to become eligible for a different rate.
Do you have a question about getting preapproved for a loan? Call the Reed Team today at 949-392-6400!