Mortgage Pre-Approvals: do I need one?

Buying a home can seem like a huge undertaking. There are many steps in the process, which, for a first time home buyer, can mean many questions. One of the most common questions is “where do I start?” Generally, before you can start shopping for a house, you need to know how much house you can afford! I know we all love to window shop on Zillow, but is that giant home with the huge windows and original hardwoods actually in your price range? It might be! This is where a pre-approval comes in. 

A pre-approval is a statement from your lender that says what dollar amount of a loan you qualify for and therefore what your home purchase budget is! This is an important part of the home buying process not only because it tells you what range you can shop in, but also comes in handy down the line as an insurance to a seller that you can afford to buy their home when you put in an offer. 

There are a few components that go into how much you are approved for:

• Debt-to-income ratio
• Loan-to-value ratio
• Credit history
• FICO Score
• Income
• Employment history

Your lender will collect this information from you either online or during a consultation and crunch the numbers. They may provide you with several scenarios that include (or remove) assistance programs or seller assists, or other other loan terms like points and length of loan. Ultimately, these scenarios will create different monthly payments, and ultimately show you exactly what you can afford.

The best part of it all is that you are welcome to get a pre-approval at any time. It might help you better understand if now is a good time for you to purchase; you may be surprised to find out you actually can afford a home, despite not having 20% to put down. Your lender will be happy to help you see what you can afford and help you put together a game plan for the future if you’re not quite ready. Pre-approvals are typically valid for 60 or 90 days. After that, you just need your lender to crunch those numbers again. 

One last thing: a pre-approval and a pre-qualification are not the same thing! A pre-qualification doesn't run your credit or verify your information, so your numbers may be skewed. When it's time to get serious, go for the pre-approval!

If you want to know more about the pre-approval process, have any questions, or want to connect with a lender, let us know!