Mortgage pre-approval is not as complicated as it seems. In fact, it is far better than opting for a pre-qualification if you are looking to get into the real estate market. Homebuyers opt to take on mortgages for various reasons, like raising enough money to meet the repayment terms of these monthly debts.
Why do mortgage lenders not offer borrowers an instant cash injection? The vetting process assesses the loan amount for which you qualify and whether a pre-approval might benefit you. It could even allow the application to skip a few steps.
So, What Is Pre-approval for a Mortgage?
The first notable lesson is that the pre-approval of your mortgage does not guarantee the home loan. Instead, the pre-approval letter outlines how much a lender is willing to give you should they sign the loan into existence. The estimate comes after the lender combs through available data, such as a current credit score and average debt-to-income ratio.
A mortgage pre-qualification relies on the data an applicant provides, whereas the pre-approval looks into the credit bureau’s data and other qualifying features that paint a picture of your financial health.
Essential Tips for Mortgage Pre-approval from a Professional
Any pre-approval process is rigorous, and each lender has unique procedures and terms. The applicant will need to give permission for a credit check and access to their credit history while providing:
- tax returns
- bank statements
- proof of additional monthly income
Is someone else funding the mortgage down payment? The lender needs a gift letter to show that there is no expectation on the mortgage applicant to repay this amount as part of a private agreement.
Why opt for a pre-approval of a mortgage? The experts cite three reasons.
Additional Read: Mortgage Tips for Pre-Approval
1. It Shows Determination
Sellers want to offer their services to serious buyers. Showing the potential to close the deal cements your position as a credible homebuyer with a pre-approval letter in hand.
2. It Accelerates the Deal
Pre-approval for mortgages also makes it possible to sign the agreement faster after finding a dream home. The lender has the information they need, and the agreed loan will be ready in a flash.
3. It Sets a Standard
Various listings pop up when buying a home, each with a unique price tag. A mortgage’s pre-approved status highlights the home loan amount so that it is quick to hunt for a property within this budget.
Are There Downsides to Pre-approved Mortgages?
1. Expiry Date
Mortgage pre-approvals set a validity period according to the lender’s policies. If the period lapses, you will need a new pre-approval letter to start the process again.
2. Credit Score Effect
After the lender’s ‘hard credit check,’ a credit score may decrease. However, this is a temporary dip and only affects immediate borrowing activities.
3. No Guarantees
Both the borrower’s financial ability and the lender’s interest rates are bound to change—pre-approval does not sign the mortgage into existence at the same rates as when it first came on offer. Ask questions, and read the fine print.
The home-buying journey can be challenging, and experienced mortgage experts like the team at A and N Mortgage make the process simpler to navigate and give great advice.
