One of first questions most people ask as they start shopping for a home loan is how much money they can expect to get. No one wants to find a home that matches all their needs and desires only to find out that it’s out of their price range. But the mortgage approval process can take some time and you don’t want to wait until it’s over to find out how much money you can get. That’s why home loan pre-approval was invented.
What Pre-Approval Is
Home Loan Pre-approval can be used as both a noun and a verb. It’s describes a process where potential lenders go over your financial information to determine how much they can lend you. Once this process is completed they will provide you with a form, also known as a pre-approval, that can be shown to home sellers as evidence that you can afford to make a particular offer.
These forms are generally only good for a limited period of time, just a few months, so once you get one you have to shop while you can before you have to go through the process again.
Home sales can be tricky because they don’t just involve two parties exchanging money for goods, like most trades. In this case one party is offering their money and the money of a third party, the lender. As such, an unscrupulous buyer could offer just about any amount of money and the seller would have no clear idea whether or not they could really make good on the offer.
A home loan pre-approval helps to fix this problem by providing evidence that a buyer can present to prove that they can in fact offer the money they are promising, although the truth is a little more complicated than the concept.
What Lenders Look at During Pre-Approval
During this process, lenders will be looking at your finances to try and estimate how much money they can give you with minimum risk, so that means they’ll need to find evidence of your cash flow and credit history. Some of the documents that a lender may ask for include:
- Tax returns
- Contact information for your place of work
- Printouts representing your bank accounts
- Credit score
- Records of outstanding debts
Whiles some lenders mays ask for only a few of these items, others may ask for even more. Keep in mind that the more documents they have the more accurate your number will be, so don’t try and hide anything because it will come out during the approval process, even if it gets missed during pre-approval.
Lenders are looking for you to prove that you are the type of person who can be trusted with money. That means that you should do what you can to show that you have been faithful with the money you have been lent in the past, that you have a decent amount of money coming in as income and that you don’t have too many outstanding debts that could get in the way of payments on a new loan.
The bottom line is that the better you look after the process is done the more money you will be offered.
What the Number You Get Means
An unfortunate misconception that some people have is that home loan pre-approval numbers are in some way binding or set in stone. The truth is that they are basically just estimates and lenders don’t have to give you the money they pre-approve you for.
When some people find out the truth about home loan pre-approval they begin to wonder why you would want to go through the process if it doesn’t produce anything solid. What’s important to remember is that even if the number you are pre-approved for isn’t the final amount you are offered it is still a better estimate then you will be able to come up with on your own.
What You Should Do After Pre-Approval
If you get pre-approved and you’re happy with the number you get then it’s time to start getting serious about shopping for homes and making offers. Before pre-approval you can really only guess what you can afford, once you get your estimate you can zero in on the homes that are within your budget and price range.
Always remember that home loan pre-approval is simply the step before approval. It is in no way binding and lenders can and will modify their offer. This can be a good or bad thing, but fortunately the outcome is within your hands to some extent.
If you work hard to improve your financial standing then your final approval will likely be higher than your pre-approval, but if you start letting your finances slip then you will get less than you’d hoped. No number is final until the deal is closed and you own your new home.
If you want to buy a home, you should seek out pre-approval. It really is as simple as that. You need to get an idea of how much money you can borrow and the best place to get an estimate from is the lenders who will hopefully give you the money when all is said and done.
Just stay realistic through the process and do what you can to improve your financial standing until you finally get approved and buy your new home.
Mortgage Capital Associates (MCA)
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Mortgage Capital Associates has been in the mortgage loan business since 1982 serving customers in 31 states and our mission has been to fulfill the home buyer’s dreams of ownership.
With 30+ years of mortgage lending experience, our reputation is based on fast delivery of industry best rates and closing your loans without any surprises. Our Mortgage Loan Consultants are extremely knowledgeable and able to tailor a mortgage to meet the individual needs of our customers. They use the latest comparative analysis software to research and compare a wide variety of loan programs and best option to meet your individual need and financial goals. Our state of the art loan software streamlines the processing of your loan, ensuring quick approvals and fast closings for you.
MCA has over 25 years of customer satisfaction and our integrity is reflected in our “A” rating with the Better Business Bureau.
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