By Briana Frazier,
Broker of Frazier Group Realty
House hunting is faced with challenges such as competition and a limited number of houses available in the market. Houses record low inventory levels, and if one intends to buy a house that somebody is already living in, there are potential challenges because it is a seller’s market. As of October 2021, homes were available in the market for only 18 days. The market is said to be balanced if the inventory of new houses is available for over six months. When searching for a home, one is advised to have pre-approvals before the house-hunting process.
Consequently, one may ask whether it is necessary to have approvals. Well, it is not mandatory, but a pre-approval letter shows that someone is a reliable homeowner and is also of great aid during the house hunting journey. Pre-approval means the amount of money one can borrow to get a mortgage.
Importance of getting pre-approved before house-hunting
Getting a pre-approval is crucial in the modern day. Some sellers do not show the property on sale to people that are not pre-approved. It is thus important to have all pre-approval documents, which allow one to view all properties in the market and make the right decision; Furthermore, the document enables one to know the amount of money one will pay at the end of the month, fostering proper budgeting. It also gives the seller comfort when handling potential buyers and gains trust with the potential buyer because they know that buyers’ qualifications have been checked.
Home buying starts with pre-approval because one gains a competitive advantage as a buyer. First, it shows that one is serious about buying the home and is a way of standing out among other buyers. Currently, inventory levels are low, meaning that the number of people who want to buy houses is more than the available number of homes sold. In the seller market, the buyer should thus look for strategies to stand out and be considered by the seller.
Pre-approvals also help speed up the mortgage process and assist one in knowing the amount of money one is to borrow from lenders and pay back later. Pre-approval aid in having a better sense of what one can afford. It also prevents one from being attracted to houses out of reach and enables a buyer to work closely with real estate investors to have the best house worth the money they have.
Ways to get pre-approval for a mortgage.
Several ways are used to get pre-approval for mortgages. For instance, one should check the credit scores. The minimum credit score required is 620, and below 580, the figure is generally considered a poor score. Many lenders require high FICO scores to reduce risks such as defaults and delinquencies.
One also needs to provide proof of income and assets, meaning that for pre-approval, a lender needs to see one’s income statement over the last two years and tax compliance for two years. More, the buyer needs to provide a lender with details on the retirement account and the overall net worth of the buyer. The information helps lenders be aware of the amount of down payment expected from men and the closing costs.
Pre-approval also requires people to have employment verifications. Lenders are concerned with this information, especially due to the uncertainties of the Covid 19 pandemic. Unemployment rates are still very low in most parts of the world and have greatly affected the labor market. Other personal information such as driver’s license and social security number is also needed. Thus a buyer should be ready to give last-minute information to secure a mortgage loan.
In acquiring a pre-approval, the borrower must ask questions such as whether the lender has worked with multiple banks and investors, whether they have extra overlays in addition to traditional guidelines, and whether they offer first-time home buyer programs to customers. The questions above enable borrowed to know more about the broker and, consequently, their working systems.
Pre-approvals vary with different lenders, meaning they have different procedures. For example, one can also complete a loan application form over the phone or physically. after that, the lender asks the borrower to present income assets and income, and finally, the mortgage lender completes the approval process
However, people are advised to take note that mortgage pre-qualification is way different from pre-approval, whereby pre-qualification is where by lender conducts an informal interview with borrowers and asks about the borrower’s monthly income, debts, and with the information borrowers give, they can tell the price range of mortgage one can handle effectively.
Pre-approval, however, does not guarantee one a loan. Several reasons can make to be denied a loan, such as running up the credit card too much before the loan closes. Job loss and negative information on credit history lead to denied access to loans.
