When it comes to purchasing a new property, the most crucial step in the process is to get preapproved for a mortgage loan. Since the mortgage industry is constantly changing underwriting guidelines, it is difficult to know if you are qualified for a home loan without submitting an application. By getting prequalified for a mortgage loan upfront, you are taking the guess work out of the equation.
Several Realtors want to know that their clients are preapproved for a mortgage loan before starting the house searching process. Some Realtors go as far as not working with anyone who is not preapproved first. It is crucial for the future homeowner to know that getting preapproved first is the most important step in the home purchasing process.
Why get preapproved first? For starters, submitting a mortgage application will let you know where you stand now. If there is a credit error, you still have time to correct the mistake. A preapproval will also let you know what down payment is needed, what your monthly mortgage payment will be and the maximum sales price of a home you qualify for. These are important things to know when looking for a house.
Credit Issues
Most people do not know what items are on their credit report until it is too late. By submitting a mortgage loan application first, if there is any negative or incorrect information on your credit report, you will have time to repair the error. Many credit repair companies take up to 45 days to correct inaccurate information. It can take up to 3 to 6 months to get all three bureaus to update with the correct information, so by starting the preapproval process first, if there is an issue, you will have time to address the problem.
Know Your Down Payment Requirement
A preapproval will let you know how much of a down payment is required to purchase a home. Since there are many different loan programs from FHA home loans to conventional home loans with each requiring a different amount for a down payment, it is crucial to know how much money you will need for the house closing. This will also give you time to prepare for the closing by saving money for the down payment.
Know Your Monthly Mortgage Payment
Preapprovals also give you an idea of what your monthly house payment will be. This will help you set up a budget and prepare for the house payment. Also, a loan consultant can help you with mortgage options that can affect the monthly payment.
Know What Your Can Purchase
The most important part of the preapproval is knowing how much you can purchase a property for. You need to know what the maximum sales price of a property you qualify for. This way, you only are searching for houses that you can afford.
Let The Seller Know You Are Serious
By getting preapproved for a home loan upfront, you are letting the seller know you are a serious buyer. If there are two offers to purchase a property and one offer has a preapproval letter, the seller is more than likely going to accept the offer with the preapproval letter. By being a prequalified buyer, you set yourself apart from those that wait until the final moments to get approved for a mortgage.
By talking with a home loan consultant and getting preapproved today, you will have a better idea of where you stand in your house buying process.
David White is a Senior Mortgage Officer who helps clients with purchase home loans. David has over twelve years experience with mortgage loans and understands the loan industry.
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