If you’re looking to buy your first home but you’re worried about hang ups along the way, the best way to be prepared is to get yourself a mortgage pre-approval. The sheer amount of information sure to fly at you from friends, family and the internet is enough to make even the most eager potential home buyer question where they’re supposed to start. Consider a pre-approval your guide to finding your first home (and your first mortgage.)
Where do I get one?
The best and easiest way to get a mortgage pre-approval is to fill out an application with a mortgage broker. The traditional option is to go to your preferred lender (usually the one you do your banking with) and ask them to do a pre-approval application for you. This is nice if you like to keep all your business with one institution, but it seriously limits your options. A broker is able to send off your application to many lenders all at once. Mortgage brokers also have access to “insider deals” that not even your own lender will tell you about. Going this route will give you the best array of options to choose from, and it’s free with no obligation to buy.
How is it done?
Your mortgage broker will start by asking you questions about your income, debts, and assets. It is important that all of this information is accurate because it will determine whether or not a lender will approve your pre-application now as well as your mortgage application later. (The pre-application is a query, whereas a mortgage application is a request to do business.) Together with your credit score the mortgage broker will send your pre-approval application off to several lenders at once. Many home shoppers worry about taking several hits to their credit by applying with several lenders at once (which is what will happen if you apply with each lender individually) but when you work with a mortgage broker it only counts as a single hit to your credit. Many would-be home buyers don’t realise that taking one hit after another can hurt your credit so much that you eventually fail to qualify for a mortgage with any lender. Most mortgage specialists will make sure to tell you not to make too many applications too close together, but some won’t.
What do I do with it?
After you submit your application lenders will respond to your mortgage broker with pre-approval information. They will inform you if they are willing to do business with you, how much they may approve you for, and what interest rates they will offer to you. All of this will be put together in a report for you to review. Once you’ve chosen a lender your mortgage broker will lock in your interest rate for 90-120 days. This means that you’ll have to time to go find the house you want to buy without having to rush because you’re worried interest rates are going to get higher before you make your mortgage application. (If mortgage rates drop within that window you’ll also be entitled to a lower rate.)
With pre-approval in hand you’re ready to start house hunting. Because you’ll know what the lender is prepared to loan you, your realtor will be able to narrow your search to your specific price range. Keep in mind, however, that you do not have to max out your borrowing limit. Take a good look at your finances and spending habits and make a budget you know you can live within. Pre-approvals are essential in a hot market because they show the sellers that you are a serious buyer.
Is this pre-approval a guarantee?
Just because a lender pre-approves you for a mortgage doesn’t mean that when you submit your formal application that they will agree to do business with you. The lender may change their mind for a few different reasons. The first reason is that the information you provided in your pre-approval was inaccurate. The second and most common reason is that something about your financial profile changed after you go the pre-approval. This looks like losing a job or taking a pay cut, taking on more debt, or a weaker credit score. Once you have your pre-approval, don’t change anything! Don’t quit your job, don’t buy a new car, don’t miss your cell phone payments. The last reason a lender may not approve you for a mortgage is because there is a problem with the specific property you want to buy. This often happens with older homes that are not up to code or homes that are priced much higher than their value.
To set yourself up for the best chances of home buying success, get yourself a pre-approval! Contact us today to get started or try our free online application below.