Many years ago, the home buying process was very different than it is today. For example, home buyers relied on their real estate agents to qualify them to figure out how much home they could afford, instead of getting a mortgage preapproval. Making an offer on a house was done without a mortgage preapproval letter. And the mortgage application was usually made after the contract was ratified. The process may seem backwards by today’s standards, but that’s how it was done.
The problem with the old process was that sometimes the loan was denied, causing heartache and anguish for the homebuyer and seller. Times have changed. In today’s market, homebuyers are expected to be more organized, which helps streamline the homebuying process. The includes getting a mortgage preapproval letter.
You may have heard it called a prequalification or a preapproval, the purpose is the same. The preapproval letter not only qualifies you, but also gives the home seller confidence that you can complete the sale.
To preapprove you, your lender checks your credit and reviews your financial documents. This will give the lender an idea of what loan program is best for you, as well as calculating your debt-to-income ratio to determine your maximum loan amount.
Your preapproval gives you a head start on the home buying process. When the lender reviews your credit and finances, they can see if there are any obstacles to getting your loan. The lender can help structure your loan in advance, which will guide you in your preparations. Additionally, the preapproval letter will show your agent and sellers that you’re a serious buyer because you’ve already started the mortgage process.
Don’t feel pressured to work with any lender, even if they are affiliated with your agent. As a homebuyer, you have right to choose the lender you want. Some buyers will go where they bank for a mortgage, because there is a mutual familiarity. Some look for the best interest rate, and others look for personal service. It can help to understand the lender better by comparing several by talking to a local loan officer. The bottom line, however, is to make sure the lender is licensed and is knowledgeable of the jurisdiction where you are buying.
By Dan Krell
Copyright © 2022
Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.