Those determined to pursue their version of the American Dream of homeownership are encouraged to buy a home sooner than later as there is currently a "buyer's market." Courtesy of the side-effect created by the mortgage meltdown and subsequent great recession there is a surplus of real estate inventory featuring highly discounted home prices and the lowest mortgage rates in recorded history are being offered by lenders. Individuals who opt to get a mortgage pre-approval prior to entering the real estate game are the ones most poised for success.
What is Mortgage Pre-Approval?
Prospective homebuyers have learned that the current real estate/mortgage market is tougher than ever. Prior to the recent real estate bust, mortgage lenders lowered their standards for approving loan applications and even consumers with lack-luster credit histories and credit scores were able to qualify for an assortment of loans, including high-risk subprime mortgages. That is no longer the case,and borrowers requiring nearly flawless credentials, including passing the mortgage pre-approval process to advance to the next round in the home buying process.
MortgageMarvel.com defines pre-approval as the "Procedure to determine how much money a potential homebuyer will be eligible to borrow prior to actually applying for a loan." By taking the time to pass the approval process prior to beginning the home buying process, consumers can gain the knowledge needed to determine the parameters of the home selection process as mortgage pre-approvals can provide clear-cut financial guidelines of how much house can actually be afforded. Additionally, the step will allow home shoppers to get the commitment from a lender in order to move forward in the home buying process.
Importance of Mortgage Pre-Approval
Over the past few years, consumers have once again been reminded of the importance of not biting off more than can be chewed in relation to home loans. Even for those individuals who have managed to maintain a healthy relationship with money, budgeting and expenses, have been able to learn from the mistakes of others courtesy of the foreclosure trend sweeping the nation. In response to the unfortunate movement, mortgage lenders have implemented tougher guidelines in regards to mortgage approval. Pre-approval is even required by some brokers and real estate owned sellers as part of the browsing process.
According to Rueters.com "The private mortgage industry has all but dried up in the wake of the 2007-2009 financial crisis, with close to 97 percent of all new mortgages now directly or indirectly supported by the government." To qualify for private lender generated mortgages, credit scores exceeding the 720 point, documentation proving employment and income as well as having a credit history indicating a long relationship of paying bills on time and in-full are the norm.
From the borrowers’ perspective, the pre-approval process will provide them factual information determining whether or not homeownership is even a reality. As sellers are getting more desperate due to the lack of qualified owners, those who get pre-approved for a mortgage will be in a stronger position for negotiating, bargaining and gain the home-buying advantage.
If a person cannot get pre-approved for a loan, they should stop looking now and spend the time needed to improve their financial situation by saving more money for a down payment and work towards raising credit scores in order to qualify for the best interest rates.
Mortgage Pre-Approval Process
For most consumers, a home purchase financed by a mortgage, represents the largest financial commitment of a lifetime. Ultimately, nearly any bank or mortgage company will issue a pre-approval letter and honor the rate for around 90 days from the time of the original application. After working towards getting their financial situation in order, consumers interested in securing a pre-approval should:
- Crunch The Numbers: Consumers need to calculate income and expenses in order to figure out the appropriate mortgage amount based on lifestyle choices.
- Comparison-Shop: Comparison-shopping is one of the most effective ways to find the best home loan options out there, and using a rate origination tool can help expedite the process.
- Paperwork: Complete tax returns (dating back three years), W-2 stubs (at least one month), bank records and prior residency information are all part of the process.
