If you’ve got home buying on the brain, one of the first things to think about is getting a pre-approval from a lender. Getting pre-approved for a loan helps you understand what kind of property you can afford, and it shows your realtor that you’re serious about home ownership.
What else do you need to know about getting a pre-approval? Read on for a quick guide to the process.
What Is a Pre-Approval?
Essentially, a pre-approval is a letter of commitment from a lender, stating how much money you are qualified to borrow and pledging to let you access those funds; assuming all requisite conditions are met. This lets you shop for a house you can afford, but perhaps more importantly, it tells your realtor and a potential seller that you’re serious about making a purchase.
How Is a Pre-Approval Calculated?
An experienced mortgage loan expert will calculate how much you’re qualified to borrow by examining a number of factors. These include your credit score, your most recent credit report, plus your income and assets. They’ll also consider what kind of property you want to buy, to provide a realistic and useful quote.
When Should You Get Pre-Approved?
Aim to start the pre-approval process as soon as possible into your home buying journey. You’ll want to know up-front how much money you have to work with, before you fall in love with a house you can’t afford to own. And, if you do find the perfect home, having a pre-approval in-hand usually means you can close on the sale more quickly.
What If It’s Not Enough?
If you get pre-approved for a loan that’s much smaller than you expected, it’s time to take another look at your finances. You mortgage loan expert should be able to help you understand why you don’t qualify for a larger loan, and what you can do to change that. This might involve paying off debt to increase your credit score, or waiting to secure an upcoming promotion before re-applying for another pre-approval.
How Long Is a Pre-Approval Valid?
A pre-approval is only valid for a particular period, usually 90 days. After that time, the lender will need to once again review your assets, credit and other key financial information to determine how much you’re qualified to borrow. Getting a new letter can take as little as two hours or as long as two weeks, so if speed is a priority, be sure to check with your potential lender about their usual timings.
For a Joint Purchase, Who Needs Pre-Approval?
If you’re aiming to buy property with your spouse or together with a group of friends, every member of the purchasing party will need to have their income, assets and credit jointly evaluated by the lender. One pre-approval will then be issued, covering the couple or entire group of borrowers who will jointly purchase the home.
What If You’re Not Ready for a Pre-Approval?
If you’re still debating about when or whether you want to purchase home, and therefore not ready for a pre-approval, you can also opt for a pre-qualification. This is an early prediction from a lender about how much you might be able to borrow – but be warned! A pre-qualification doesn’t include a thorough financial review, so your ultimate pre-approval amount may be smaller or large than initially predicted.
Who Should I Talk to Next?
If you’re ready to take the next step in your home-buying journey, speak with a trusted lender for more guidance. A Mortgage expert can explain the process of pre-approval, work with you to evaluate your credit, income and assets, and get you on your way to settling into a new home.
Complete HUECU’s express pre-approval now to get started on your home buying journey.