Advantages of Getting Pre-Approved for Home Loan

Benfits of Getting Pre-Approved for a Home loan before you start looking for a home

Getting a loan preapproval is generally the way to go because it is a more formal and detailed process before being preapproved for a loan the creditworthiness of the borrower is checked as well as other financial information about the borrower is required. Getting preapproved for a certain amount means that you have been formally cleared by the lender to be able to borrow that sum of money. The lender verifies your current income, expenses, future predicted debts with proper documentation. The process is very similar to underwriting where your current assets and liabilities and even employment is considered before giving you your preapproved borrowing amount. If you happen to be self employed the lender conducts a analysis of your federal tax returns for the past couple of years.

The lender will probably have a look at your credit report, verify your bank account statement, your income along with any other documents that you have submitted. This entire process could take up to a couple of weeks. But usually it is well worth the wait as it gives you an added advantage. In fact it gives you 2 advantages to be preapproved for a home loan before looking for home.

You know what your budget is even before you start looking for a home

When you have been preapproved for a loan you already know what you can afford to buy. It is almost like having a line of it available to you. When you find a house that you like and it is within the limit of the amount you have been 3 approved for you can proceed with the confidence that you have the money available to you. However, you must stay in touch with the lender through the time that you are looking for the house. While you have been preapproved for a certain amount this is not completely hard and fast. If the interest rates have been to increase during this period the amount you can qualify for a decrease. But subsequently if the interest rates decrease you may be able to take advantage of this fact and borrow a larger sum of money.

You have an advantage in a multiple offer situation

Let’s say that there is more than one offer on a particular property that you want to purchase. If you are the only one who has been preapproved then you will have an upper hand because the seller will take your offer more seriously. He will know that you are a genuine buyer and will be more confident that the sale is likely to go through as you have already been approved for the sum of money required by the home. Being preapproved also means that you have been deemed creditworthy by the bank which is another good sign to the seller.

Getting preapproved usually will cost you a fee. This is because the lender has to go through manual loan approval process as well as make charges for purchasing your credit report and credit score. Lenders do not like to complete this process for free because preapproving you does not necessarily mean that you’re going to choose them finally for your mortgage loan.

There will be a mortgage lenders who will offer you a preapproval free of cost. This does not necessarily mean that you should deal with these lenders only. What you save on the initial cost, you might have to pay back with a higher rate of interest. Also when taking a mortgage loan the reputation and the comfort factor with the lender is equally important as the interest rate. Choose to work with the mortgage lender that not only offers a competitive interest rate on the markets but also somebody you can rely on to be helpful, accommodating and communicative in the future.

Getting Prequalified for A Home Loan In Not Good Enough

Home loan pre-qualification may mean next to nothing as far as buying your dream home is concerned.

A prequalification for a loan usually does not mean much it can either be based on our perfunctory information about the borrower or can also be a marketing technique used by your bank or the creditor. Going by the prequalification status for a loan can be potentially a waste of time and money and even misleading. There have been many instances of seeming e-mails and notifications from a bank saying that you have been pre-qualified for a certain amount of loan only to find out that this amount is really of no consequence as it was based on insufficient information and needs to be further verified. A pre qualification of can be the result of a casual conversation with a loan officer. After quickly asking you casual questions about financial matters such as the present income, expenses and cash savings for a down payment the loan officer can give you estimate of approximately how much money he might lend you at current mortgage interest rate assuming that everything you said is accurate many lenders might also provide a prequalification letter.

However even this does not mean anything because when the Lohan family has to be approved of the underwriting process that follows is very different and may come up with completely different figures. By team qualifying is the lender does not promise you anything not really substantiate anything you told them about your finances.

The pre-qualification does not even warrant a check into the creditworthiness of the borrower. Checking the credit worthiness is an important part of underwriting alone and has a big impact on the outcome.

Disadvanatge Of Not Getting Preapproved for the Home Loan

What can happen when you are not preapproved for a home loan?

Let us imagine a scenario where you have been looking for a house on the market for a. After weeks and months of searching and feeling dejected you finally find house that is the house of your dreams. You make an offer to buy the house to the seller and pay the amount that he demands conditioned upon your approval of the property inspection and obtaining financing.

The offer for the purchase gets excepted by the seller. However, you discover a few weeks later from a loan officer that your loan has been denied by the bank. The problem is not that the prices offered is too much for the property that you want to buy. In fact the house is worth every single dollar that you have offered to buy for. The problem is you and your current income and projected expenses. The bank does not think that it can approve you for the amount of what is it you want to borrow without risking a great chance of default. You may not be earning enough money to make the monthly mortgage payment plus property taxes and the homeowners insurance without putting yourself under great financial burden and becoming a likely case for a delinquent borrower. Additional loss could be the hundreds of dollars that you have already spent on property inspections and loan fees.

Which is why it is advised that you always try and get yourself preapproved for a home loan. The first step is of course always to determine how much you can afford. The state and step should be to find out how much your current income and expenses allow you to borrow from mortgage lender and what amount they will approve you for. Once you have the price bracket ready with you only been should you begin your house hunt.