If you want to apply for a home loan, you need to become familiar with the industry jargon, and the different mortgage options available on the market. Purchasing a house is a paramount task, and it involves many factors. Besides having to hunt the right home that fits your desires and lifestyle, you need to make sure you can afford it. Most people are looking for financial help from mortgage advisors when applying for a loan.
One of the crucial steps in this process is mortgage pre-approval. It includes contacting a lender, talking about your financial situation, and discussing any goals and concerns. It is almost as good as having the loan money in your pocket. Besides the confidence, it also makes you a genuine home buying prospect in the eyes of real estate agents. If you get pre-approved, sellers will take you more seriously, and be more opened for negotiation.
However, it does not necessarily mean you will be able to purchase the home you desire. Some issues could occur, that would prevent you from getting approved. It rarely happens, but it is possible, so you should be aware of this potential pitfall. Sometimes, the house can be overvalued, and the loan lender could deny your request based on this determined market value. There is also the possibility of failing a title check, or of exposing issues during the inspection that should be repaired before granting your home loan application.
One of the essential benefits of getting pre-approved is that the brokers will be willing to assist you with the home search if they are confident that you will be able to afford your dream house once you locate it. Also, sellers will want to work with you if they know you will be approved for the mortgage loan. They do not want to risk taking their home off the market, only to find out the deal fell through once they realize you cannot afford it. Next benefit is that much of the paperwork will already be processed, which means the actual approval will be less stressful for you.
There are several things you need to prepare to get pre-approved. The first one is the proof of income. You need to prove that you are financially capable of repaying the loan. Some of the necessary documents are tax returns, bonuses, W-2 statements, and recent pay slips. You also need evidence of assets, as it will serve as additional proof of mortgage-paying capability. Usually, you are obligated to submit copies of investments and bank statements, which will prove you have adequate funds for the costs related to taking out a loan.
Most mortgage lenders require an excellent credit rating of at least 740, to obtain the lowest interest rates. However, you will get approved with a minimum score of 620, but with stricter conditions. Those with lower scores will have to negotiate, and they usually get higher interest rates. It is always better to try to fix the credit rating, before applying for a home loan. Certified or verified documents of employment are also paramount. They need to contain your name, present address, job position, salary grade, and the name of the company you work for. Once you have prepared the necessary paperwork, you can go ahead and get pre-approved for a mortgage loan.
Extra Tip: Make sure your accountant has your finances in order before you apply!