Buying a house is every person’s dream, and since we cannot all afford to buy on a cash basis, a pre-approved mortgage becomes the next best option. This piece explains why you should get a pre-approved home loan before house hunting and the factors to look out for when selecting your mortgage lender.
Why Should I Get a Pre-Approved Mortgage for My First Home?
When you are buying your first home, there are many reasons why you get a pre-approval mortgage before looking at houses. These include:
- It helps you know the amount of money you are working with
When you are looking to buy a house, there are various things you need to consider. These include the location of the house, the size of the house, and the must-haves of your future home. Only by knowing all these things will you select the best home for you and your family.
One of the most significant factors is the cost because when you have an estimate of your mortgage loan, you can narrow down your choices to what you can afford. You will also know if you need to save for a down payment and how much you can afford in monthly repayments.
Getting a home loan pre-approval allows you to set budgetary limits and ensures that you are looking at home within your financial capability.
- It makes you an attractive buyer
In the real estate market, there is the buyer’s market and the seller’s market. In the buyer’s market, the demand is low while the inventory is high, giving you a lot more leeway in the purchasing process.
On the other hand, demand exceeds the inventory in the seller’s market, and the buyers must have a competitive edge against their competitors to emerge winners. In this case, a buyer with a pre-approved mortgage letter will be more attractive to the seller than one without.
A mortgage pre-approval shows that you are serious about buying the house. It also indicates that you have a lender willing to back you, meaning that your financial status is stable and you can afford the payments.
- It gives you more room to negotiate
When you have a pre-approval letter, you have more bargaining power because the seller and the real estate agent know that you are qualified for the offer amount. Therefore, they may be more willing to make some concessions if they are sure that a sale is a sure bet.
Mortgage pre-approval gives you a firm standing, allowing you to request some compromises, such as the seller covering some home renovation, closing costs, or a home warranty.
- It helps you close quickly
You may be wondering, why not apply for a mortgage loan after you have found your dream home? In a seller’s market, demand is high while inventory is low, so by the time you are approved for a mortgage, you may find that your dream home was already bought by someone else.
So get a pre-approval home loan to ensure that once you find your perfect house, you can make an offer fast and close it before somebody else does.
Therefore, you will be in a position to conduct home appraisals and inspections as fast as possible and close as fast as you can.
- Lock-in interest
As economic conditions in the country change, the interest rates are bound to go up and down. Therefore, getting a pre-approved mortgage can get in on a locked interest rate before they soar up again.
Therefore as soon as you sign the purchase contract, your rate is locked, and the lower the rate, the more you will save throughout the entire life of the mortgage loan.
- Eliminates credit surprises
Getting a mortgage pre-approval before house hunting allows you to avoid credit surprises that are inevitable once you’ve already found your ideal property. If you wait until you’ve found the house to apply for a mortgage, you may find that your credit score is below the recommended limit, disqualifying you for a mortgage, and this can be disheartening.
Therefore the sooner you apply for a mortgage home loan, the earlier you can fix issues with your credit, making sure that you do not miss the opportunity of purchasing your dream home.
Learn how to fix bad credit fast if your credit score is low.
- It helps you resolve your financial issues
Before a lender issues you with a pre-approval letter, they perform a thorough investigation of your financial records and credit status. And the pre-approval letter issued will record the amount they are extending, which shows the seller your purchasing power.
Many of us dread taking a deep look into our finances, but a mortgage pre-approval opens our eyes to where your money is going, misuse, and your credit status.
Therefore, even if you don’t get pre-approved for a mortgage, you will be enlightened on your messy financial situation and can rectify it in time. So that by the time you are applying again, you are guaranteed to pass.
Selecting a Mortgage lender for your Pre-Approved Mortgage
Buying a home is a major decision, and if you choose to go down the mortgage home loan road, you must ensure that you select only the best lender. In today’s real estate market, buyers are presented with more choices in terms of lenders, and it bests that you compare several lenders before settling for one.
It would be best if you considered the following factors before selecting your lender.
- Types of mortgage loans
There are different types of mortgage loans, and they include conventional loans and federal government-insured loans. Conventional mortgage loans are not backed by the government, and they vary, with some requiring a certain amount of down payment or setting a higher loan limit.
It is easier to qualify for a government-insured home loan because they require a lower credit score. Therefore, be sure to specify the type of mortgage you need and ensure that your lender is offering the financial products you are seeking.
- Qualifying requirements
There are different lenders in the market, and each has set its own standard rules when approving you for a home loan. These include credit score and credit report, down payment, debt-to-income ratio, and income. Make sure that you can meet the requirements of the lender you have chosen to go with.
- Competitive interest rates
It is recommended that you compare the rates and fees of several lenders to get a lay of the land. This will help you understand what the real estate market is like at that particular time and which lender offers competitive rates.
Note that the rates and loan program you are eligible for depend on the lender you choose, and your needs and financial status also play a huge role, so comparing different lenders will provide a baseline of where to start from. It is best to look at the common types of loans offered and interest rates.
Fixed-rate loans do not fluctuate over the life of the mortgage but Adjustable-rate mortgages can change as economic condition changes, and they can go up or down. So be careful when choosing your lender.
- The cost of the loan
When getting a mortgage loan, be sure to note that you may be required to pay other costs apart from the down payment. Therefore, be sure to ask for a loan estimate from the lender to get a picture of what extra costs you will incur. Some of the things to keep an eye out for include:
- Commissions:
Mortgage brokers earn a commission, either paid by the buyer or the lender. So make sure to clarify who is paying to avoid last-minute costs. If the lender indicates you pay, you can negotiate to share the cost.
- Origination fees: this is the cost of processing your mortgage loan application.
- Appraisal fees: Property valuation must be done before you buy a property, and it is done by a professional, who must be paid appraisal fees.
- Credit report fees: This is the cost of obtaining a credit report from the credit reporting bureaus.
- Discount points: You must check if the lender allows you to pay a down payment, reducing or lowering the interest rate.
The goal of comparing costs and rates is to ensure that you are getting the lowest rate possible from the lender. Lucky for you, many lenders have websites, and this allows you to compare the rates online without causing any impact on your credit.