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Getting pre-approved for a loan: A Primer

Getting pre-approved for a loan: A Primer

Getting pre-approved for a loan: A Primer

When it’s time to shop for your very own home, what’s the first thing you want to do? Many buyers will naturally feel tempted to leaf through listings and start building some big dreams about their ideal residence. But there’s a smarter way to start your search — by getting a pre-approval letter from your bank. Let’s examine the value of pre-approval as a tool for intelligent home buying, along with some important questions that will help you get the greatest benefit from your pre-approval consultations.

Why Pre-approval Matters

Pre-approval gives you a reliable idea, not only of how much home you can reasonably buy, but also of the approximate size and interest terms of your loan. Because a pre-approval offers is based on verifiable financial data and states specific loan options, it represents a conditional approval rather than just a simple, vague estimate (as in a pre-qualification). When you’re approved for a specific type and size of loan, you can narrow your sights to the attractive properties that fall within those parameters. As a result, you can greatly reduce the time and energy you put into your home buying journey.

Smart Questions to Ask Your Loan Officer

It’s wise to have some prepared questions for your pre-approval meeting with your loan officer. Make sure you get the following questions answered to your satisfaction:

  • What’s the highest purchase price for which I can qualify? You may not come anywhere close to this amount in your actual home search, but you want to know the absolute ceiling in case you discover a stunning, must-have property at the top of that range.
  • What would I pay in closing costs and monthly payments at that maximum level? One downside of taking the largest loan you can get approved for is that you’ll pay correspondingly high closing fees and monthly mortgage payments.
  • How could a lower purchase price affect my closing coats and monthly payments? Ask for the closing costs and monthly payments you could expect for a few different loan types and sizes.
  • Which loan options should I consider? Your loan officer may be able to present you with multiple loan options depending on your circumstances and background. If you’re a veteran, for instance, you may get pre-approved for a VA loan with no down payment and no mortgage insurance requirements. If your credit score is too low to qualify for a conventional loan, you could still get pre-approved for am FHA (90%) loan.
  • What can I do to get pre-approved for a higher purchase price or better terms than I can currently obtain? Improving your credit score and your debt-to-income ratio can help you receive pre-approval for a higher maximum loan amount or lower interest rate.

Contact your loan office to schedule a pre-approval consultation. Don’t forget to bring along your proof of income and employment, tax returns from the past two years, bank statements, your credit report, and your contact information!

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