The real estate market has never been more hectic – with so many variables out of your control, why not do what you can to strengthen your ability to purchase a property? A mortgage pre-approval can give you an upper hand on other offers and a perspective on what you can reasonably afford.
What is Pre-Approval?
A pre-approval is a statement from your lender indicating that you qualify to borrow a certain amount of money to use toward your future home. The maximum amount of money gets outlined by the lender in a pre-approval letter.
When determining the loan amount, the lenders will consider several factors, including debt-to-income ratio and credit score, much like a traditional mortgage approval. Typically, the better one's financial situation is, the more likely they'll get pre-approved.
Note that even if you qualify for a pre-approval loan, you are not bound to borrow the money.
You should compare offers from multiple lenders and investigate competitive pricing. Check the reliability of each, as unsolicited offers you get in the mail can be misleading. Ultimately, select the option with the most optimal lending terms.
After filling out a loan application, lenders will base your ability to qualify for a pre-approval on your income and assets or the 4 C's: capacity, capital, collateral and credit. To make the process as streamlined as possible, have your W2, bank statements and tax returns handy – if you've recently changed your name, have the relevant documentation ready.
Your application and accompanying documentation will go to an underwriter who will see which mortgage you qualify for, which will take a few days or weeks. Should you meet the requirements, you will receive a pre-approval letter specifying how much the lender is willing to give. The pre-approval is valid for 60 to 90 days; for most home buyers, this is enough time to find the property that meets their desires.
Reasons for Pre-Approval
There are many benefits to getting a mortgage pre-approval from a lender, as it allows you to determine your price range and how much money you can borrow. By familiarizing yourself with how much you can realistically spend, the home-search process becomes less stressful, removing the time-consuming guesswork. It likewise gives you the peace of mind that you can afford the purchase.
Additionally, a pre-approval increases seller confidence and buyer confidence. Today, many sellers won't even consider an offer without a mortgage pre-approval. By taking the time to get pre-approved, you can signal to the seller that you, the buyer, are qualified and serious about purchasing their home. It also strengthens your offer, helping you stand out from others. Similarly, getting pre-approved provides you with some flexibility when bargaining and negotiating.
Making Things Simpler with NMC
Although a mortgage pre-approval is critical to boosting your chances of getting your next home, it's key that you borrow within your financial limits. Searching for homes while figuring out your budget can be challenging, especially if you are simultaneously packing, working, taking care of children, etc.
Make the pre-approval and moving process smoother by leveraging the expertise of NMC – our personable and qualified staff can give you the support you need through this journey.