Getting Preapproved for a Loan : Qualifying for a Mortgage
We love a good thriller. If you’re looking for a spine-tingling mystery, however, Getting Preapproved for a Loan, Mortgage Management For Dummies isn’t it.
Qualifying for a mortgage shouldn’t be the least bit mystifying. And after you understand how lenders play the game, it won’t be.
This chapter removes nearly every bit of puzzlement from the process. We show you exactly how to get started, tell you what lenders look for when evaluating your creditworthiness, and help you solve your mortgage problems
whether you’re looking for a loan as a firsttime homebuyer or trying to refinance or pay off your mortgage faster.
Getting Preapproved for a Loan
Everyone knows that time is money, so we decided to begin this section with a timesaving tip.
If you’re a homeowner who wants to refinance an existing mortgage, you have our permission to proceed directly to the next section, which discloses how lenders evaluate your credit.
This segment applies only to folks who haven’t bought a house yet.
(Don’t feel slighted. We devote this site entirely to the fine art of refinancing.)
Now, for all you wannabe homeowners, be advised that there’s a right way and a wrong way to start the home-buying process.
The wrong way, astonishingly, is rushing out helter-skelter to gawk at houses you think you may want to buy.
Don’t get us wrong; knowing what’s on the market is important. It’s even more crucial to educate yourself so you can distinguish between houses that are priced to sell and ridiculously overpriced turkeys.
If you don’t know the difference between price and value, you could end up paying waaaaaaaaaay too much for the home you ultimately purchase.
But . . . first things first: If you can’t pay, you shouldn’t play.
The worst-case scenario
Suppose you’ve been looking at open houses from dawn to dusk every Saturday and Sunday for the past seven weeks.
Just when you begin to think you’ll never find your dream home, it miraculously appears on the market.
You promptly make an idea to purchase casa magnífico, molded upon your endorsement of the property investigations and acquiring agreeable financing.
At the point when the dealers acknowledge your liberal offer, the bluebird of joy sings happily.
After three weeks, the flying creature croaks. ( Getting Preapproved for a Loan )
The advance official calls to remorsefully prompt you that the bank has rejected your credit application.
The reason isn’t on the grounds that you offered a lot for the house, Getting Preapproved for a Loan.
Despite what might be expected, the examination affirmed that the property merits each penny you’re willing to pay.
The issue, dear peruser, could be you. Tragically, your present pay and anticipated costs might be lopsided.
You may not acquire enough cash to make the month to month contract installments in addition to make good on the property government obligations and mortgage holders protection without pauperizing yourself.
Adding insult to injury, this depressing discovery is delivered to you after you’ve blown hundreds of dollars on property inspections and loan fees and put yourself through an emotional wringer for three weeks.
Now the good news :
It doesn’t have to be this way. After you establish how much you can prudently spend for your dream home, which we cover in Chapter 1, the next logical step is to get yourself preapproved for a mortgage.
At that point you’re appropriately arranged to start your home chase.
Loan prequalification usually isn’t good enough
You can use two techniques to get a lender’s opinion of your creditworthiness as a borrower.
One is the better way to go.
The other is possibly a misuse of your time and cash and may even be terribly deceptive.
We start by critiquing the second-rate method.
Loan prequalification is nothing more than a casual conversation with a loan officer.
After rapidly testing you about evident budgetary issues, for example, your present pay, costs, and money reserve funds for an initial installment.
The credit official renders a down-and-filthy guesstimate of roughly how a lot of cash he may loan you at current home loan financing costs accepting that all that you’ve said is exact.
Most moneylenders thoughtfully give a prequalification letter appropriate to confining or swatting mosquitoes.
Prequalification is quick and shoddy.
It seldom takes over 15 minutes except if you’re the sort who experiences difficulty parallel stopping.
Because the lender doesn’t substantiate anything you say, the lender isn’t bound by the prequalification process to make a loan when you’re ready to buy.
When your finances are scrutinized during the formal mortgage approval process, the lender may discover additional financial liabilities or negative credit information that reduces your borrowing power.
In that case, you end up squandering precious time and money looking at property you aren’t qualified to buy.
Loan preapproval is the way to go
After you read this section, you’ll understand why formally evaluating your creditworthiness is such a protracted process.
Loan preapproval is significantly more
involved than mere loan prequalification.
Preapproval involves a thorough investigation of your credit history.
In addition, the lender independently documents and verifies your present income and expenses, the amount of cash you have on hand, assets and liabilities, and even your prospects for continued employment.
If you’re self-employed, the lender conducts a diligent analysis of your federal tax returns for the past couple of years.
Getting the credit report, confirmations of salary and work, bank articulations, and other fundamental documentation typically takes at any rate possibly 14 days.
That’s time well spent.
Getting preapproved for a mortgage gives you two huge advantages :
You know how much you can borrow, Getting Preapproved for a Loan.
Being preapproved for a loan is almost as good as having a line of credit when you start house hunting.
The only thing the lender can’t preapprove is the house you buy.
Because you haven’t begun looking at property yet, your dream home is still only a twinkle in your eye.
Be sure to stay in touch with your lender during your house hunt.
The amount you’ve been preapproved to borrow is written on paper, not carved in stone.
Lenders won’t give you a firm commitment on your loan’s interest rate until you actually have a signed contract to buy your dream home.
If interest rates increase (or your employment income declines) after you’re preapproved for a mortgage, the loan amount decreases accordingly.
By a similar token, you can acquire considerably more if loan costs happen to decrease (or you get a merited salary increase).
You have a bit of leeway in different offer circumstances.
In a hot land advertise, you may wind up contending with different purchasers for a similar property.
Being preapproved is proof positive to sellers that you’re a real buyer.
Your offer will be given far more serious consideration than offers from buyers who haven’t bothered to prove that they’re creditworthy.
Some lenders offer free loan preapprovals to prospective homebuyers as a marketing ploy to endear themselves to borrowers.
However, others charge for loan preapproval.
Don’t choose a lender only because you can get a freebie pre-approval.
Such a lender may not offer the most competitive rates, which could cost you far more in the long run (Getting Preapproved for a Loan )