Getting approval for home financing can be stressful, even in the best of times. Whether you’re looking to buy or build, getting pre-approval on your mortgage is a smart move that can save you a lot of anxiety.
Mortgage preapproval is a letter from a lender indicating the type and amount of loan you can qualify for. You can receive a preapproval letter after the lender has evaluated your financial history — including pulling your credit report and score.
Why get pre-approved?
- You’ll have a price range to work with: you know how much you’ll be able to borrow and can house-shop accordingly.
- You can make a stronger offer: when the seller evaluates your offer, it shows that you already have financing in place and that you’re serious about making the purchase.
- You can get to closing faster: the documentation required means you’ve already done much of the legwork and can start farther along the path to closing.
Do your mortgage homework because ultimately, getting pre-approved helps you get the best deal. Before you start your home search, you need to conduct some mortgage research.
Why shop for a mortgage?
Many people find their dream home then find a lender. This can make you feel rushed and uncertain that you’ve made the best deal in the long run. It can mean paying higher rates or taking a loan that may be too short or too long — or borrowing more than you can comfortably afford.
Getting pre-approved at the right level helps ensure you can buy your home and have enough money left in your budget to make your other dreams come true.
Know your home budget before you shop
Building, buying or renovating a home is one of life’s biggest investments. It’s hard to wrap your mind around how it fits into your monthly budget and lifestyle. Try an online mortgage calculator [LINK] and test some numbers to see the impact that the rate and term have on your monthly payment.
This is one time in life when it’s good to stay in your comfort zone. You’ll be happier with your purchase when you know you can afford your home — as well as life’s other necessities.
What kind of mortgage do you need?
There’s no “right” mortgage you’re trying to find. Take a close look at your options to determine which kind of mortgage fits your timing and status.
- First time home buyer: designed for those who haven’t purchased a house before.
- Short-term bridge loan: helps during the transition between buying or building a new home and selling the previous one.
- Construction loan: for those building homes or undertaking major renovations, this helps roll construction costs into the new mortgage when building is complete.
- Refinancing: paying off the previous mortgage with a new one at a lower rate or different terms can lower the monthly payment, extend the loan or help pay it off faster.
- Home equity loans: A home equity line of credit (HELOC) uses the equity in the home to help fund improvements or other costs like education.
The mortgage process can be complicated. In addition to looking for good rates, be sure to research prospective lenders you can trust and who can serve as long-term partners. Your mortgage is likely the biggest investment you will make in your life; for your peace of mind, work with a lender who respects and appreciates that relationship.