Obtaining a pre-approval for home loan is one of the first significant steps in your home-buying journey. It provides valuable information, helping you budget and setting you up in a good financial position before purchasing.
You can discuss loan options, clarify important issues, and make smarter decisions before the final approval. Although this isn’t a requirement when house-hunting, it helps to make the process easier and shows sellers that you’re prepared.
Getting a pre-approved home loan is a straightforward process that doesn’t pose any problems. You’ll provide your lender with some documents to ascertain important information, after which you get a formal pre-approval.
However, you should note that this conditional approval isn’t final. It only means you can shop for the best deals, and discover your ideal abode.
Let’s find out how you can get a mortgage pre-approval and enjoy the best home loans.
Steps to obtaining a home loan pre-approval
Before you start the actual process of getting a home loan, the following basic steps are necessary to get the pre-approval. Let’s go over them.
1. Estimate your monthly budget
Before deciding on a home loan pre-approval, the first thing to consider is to determine your budget. You should estimate how much you’re comfortable paying each month. Although a home loan lender may consider you for a larger monthly payment, you should stay within your budget.
2. Select a mortgage lender
You need to search for the best mortgage lenders around to get the best deals. Check different lenders for the best fees and rates on your loan. You can even apply for pre-approval with different lenders. This gives you more likelihood of getting a very low rate.
Aside from this, you can observe how lenders handle the process. This makes you more equipped with better information to handle the home loan pre-approval. However, you’ll need to deal with the home loan pre-approval phase at various times.
3. Get your documentation ready
The home loan approval process is just like a mortgage application. As a result, you need to support your application with financial documents.
Typically, you’ll require the following documents while applying for a home loan pre-approval: pay stubs, credit history, proof of income, W-2 statements, valid Identification (like a photo ID and driver’s licence), bank account statement, debt-to-income (DTI) ratio, and other relevant documents.
After submitting the documents to the lender, you’ll get a loan estimate within 3 working days. Although this process may be faster with an online mortgage lender.
4. Go over your credit report
Ensure you run a credit check before the lender. Request copies of the report and check for errors. This is important as errors may hinder you from getting pre-approved or finding the best rates. Mortgage lenders usually carry out a hard inquiry on your credit history. Therefore, it’s best to run a credit check before seeking a home loan pre-approval.
5. Get pre-approved
This is the final step of the home loan pre-approval phase. Filing for pre-approval can be flexible as it can be done online or in person. In this last phase, your mortgage lender verifies all the documents and checks your credit history to be sure you can afford the type of home you want.
Many lenders use a system-generated pre-approval to pre-approve home loans. This makes the process faster, and lenders can make pre-approval decisions quickly. Once pre-approved, your lender will send you a loan estimate containing the loan amount, interests, mortgage type, and other details.
Benefits of a home loan pre-approval
1. Provides an accurate loan budget estimate
A pre-approval home loan properly informs you of the loan budget. Asides from noting the loan amounts, you’ll also see the monthly payments, interest rates, and other details. This allows you to make better financial decisions regarding the home loan.
2. Allows for easier negotiation
Having a pre-approval letter increases your confidence since you already have information on what you can afford. Negotiations become easy as the lender can take you seriously for the purchase as opposed to those without pre-approval.
3. Productive property search
A pre-approval enhances your house-hunting chances. You’re able to close in on that particular house you’ve always wanted. Also, the home loan approval eases your search as you’re already aware of the house budget. Therefore, this cuts down unnecessary time wasting due to insufficient information.
4. Settles your mind
Obtaining a home loan pre-approval means you have fewer things to worry about, making you focus on other necessary stuff. With a pre-approval home loan, a large chunk of the mortgage application has been settled, thus freeing your mind. In addition, a mortgage pre-approval makes for an easier and smoother application.
Bottom line: pre-approval for home loan- do you need it?
With the help of our loan pre-approval guide, we hope you can make a more informed decision on your loan. But feel free to check out our finance section for more guides and tips.
You cannot underestimate the advantage a home loan pre-approval offers you in today’s competitive financial marketplace.
Depending on your financial situation, there are different types of mortgages you can opt for.
Although some lenders may approve a 30 or 60-day pre-approval, many mortgage pre-approvals typically last about 90 to 120 days.
Remember to prepare the necessary documentation and check your credit history before submitting it to the lender. This way, you’re sure of no errors, making your pre-approval process faster.
