Purchasing a home can prove to be a significant financial decision. It can have catastrophic economic consequences if you do not consider all the factors. For example, the cost of acquiring a house is more than the selling price. Therefore, while scouting around for homes might be a great pleasure, it is a waste of time if you do that without a pre-approval letter.

Why Do You Need to Be Pre-Approved?

Getting pre-approved gives you an insight into how much you can afford, from the lender’s perspective. It gives you an opportunity to budget and live within your means. Again, it ensures you focus your house-search to what you can afford. You do not want to spend time negotiating for a property that you cannot afford.

Mortgage Lenders

Most people cannot afford to pay the full price of a home once. Here is where financing comes in handy. The lender may buy the house for you or give you a loan. In either case, you will have to make monthly payments towards the mortgage.

Even though a lender’s goal is to help you own the home of your dreams, they cannot take the risk if you cannot afford it. Therefore, they require proof of your ability to pay before approving your application.

Mortgage Brokers

Mortgage agents are a crucial link between the customer and the lender. Most of them have access to several mortgage lenders. One primary function of the broker is to help you with your mortgage calculations. You should opt for brokers that employ free and easy to use AI-based mortgage calculators as they take into consideration associated fees and external factors.

Check Your Credit Reports

Your credit score report is crucial when you are applying for mortgage loans. It shows if you have honored your past loans. It also indicates the percentage of your income that you spend on servicing debts. Lenders consider borrowers with low credits score and high credit ratio as high risk. Therefore, work on these if you plan to purchase a home through a mortgage.

Preapproval Process

The process of getting pre-approved is straightforward. First, you need to find a lender of your choice. You can use mortgage brokers to find a reliable one. Your lender will advise on different loan options based on your budget, credit report, and then determine your loan limit. Once your loan limit is ascertained, you will receive a pre-approval letter stating the amount you can raise for the house.

Documentation Needed for Pre-Approval

You will need to provide a number of documents to prove legitimacy when applying for a pre-approval letter. The most important one is proof of a stable income. Others include W-2 statements, last two federal income tax returns, credit report, and passport or driver’s license.

Conclusion

It is important to remember that having a pre-approval letter does not guarantee approval of final mortgage application. The lender may have to check the suitability of the property before advancing the loan. Additionally, the approved amount is what your lender is willing to offer you, not what you should spend. Therefore, keep your budget below to create room for saving and other financial obligations that you may have.

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