December 8th, 2016 5:08 AM by Jackie A. Graves, President
If you’re on the market for a mortgage, you probably know
that lenders won’t just shower you with money when you show up at their office
with a smile and a heart-warming story about how you’ve found the perfect
home. Nope, they want to know that if they give you a home loan, odds are
good you’ll pay them back. And that’s
where mortgage pre-approval comes in.
In this third installment of our Stress-Free Guide to Getting a Mortgage,
we’ll illuminate all you need to know about this crucial stage and how
to ace it without a hitch.
Mortgage pre-approval is that step in the process where a
lender probes deep into your financial past, checking out your income,
debts, credit score, and other factors that help it determine whether or
not to give you a home loan—and how much money you stand to get. And that helps
you set your sights on the right price range for a home.
“You need to know your buying power,” says Ray
Rodriguez, New York City regional mortgage sales manager at TD Bank. Indeed, finding out your price range now can save you a lot of time and energy
in the future.
“It’s emotionally crushing to find a home that you love and not
be able to afford to purchase it,” he says.
Mortgage pre-qualification entails a basic overview of a
borrower’s ability to get a loan. You provide a mortgage lender with
information—about your income, assets, debts, and credit—but you don’t need to
produce any paperwork to back it up. As such, pre-qualification is relatively
easy and can be a fast way to get a ballpark figure of what you can afford. But
it’s by no means a guarantee that you’ll actually get
approved for the loan when you go to buy a home.
Getting pre-approved, in contrast, is a more in-depth process
that involves a lender running a credit check and
verifying your income and assets, says Rodriguez. Then an underwriter does a
preliminary review of your financial portfolio and, if all goes well, issues a
written commitment for financing up to a certain loan amount; this commitment
is good for up to 90 or 120 days. So as long as you find your dream house and
officially apply for your loan approval in that time period, you’re
good to go!
Moreover, getting pre-approved is typically free, says Staci Titsworth,
regional manager of PNC Mortgage in Pittsburgh. Expect it to take,
on average, one to three days for your application to be processed.
A letter of pre-approval from a mortgage lender is akin to
a VIP ticket straight into a home seller’s heart. Why? It’s proof you are
both willing and able to purchase the home. Consequently, many sellers
will accept an offer only from a buyer who has been pre-approved,
which makes sense given that without pre-approval, there’s basically no
guarantee whatsoever that the deal will go through.
To get pre-approved, you’ll need to provide a mortgage lender
with a good amount of paperwork. For the typical home buyer, this includes
Don’t make this pre-approval mistake!
Each time you apply for a new credit account—including
a home loan—you trigger a “hard inquiry” on your credit, which dings your
credit score, says Bill
Hardekopf, a credit expert at LowCards.com. Your score can drop
as little as a few points or up to 14 points, depending on your credit history
and the number of other loans or credit accounts you’ve applied for in the past
90 days, says Jeremy
David Schachter, mortgage adviser and branch manager at
Pinnacle Capital Mortgage in Phoenix, AZ.
Because hard inquiries hurt your credit score, you will
want to avoid applying for pre-approval with multiple lenders; otherwise,
your score could decline to the point where you get locked out of buying a
home. Still, it’s beneficial to meet with several lenders to explore your
options conversationally, since some lenders offer more competitive interest
rates and better service than others.
you have what it takes to move to the next step? Tune in next week for the
next installment of our Stress-Free Guide to Getting a Mortgage: How
to pick the right type of home loan for you.
By Daniel Bortz - To view the
original article click here