While you ponder over buying a house, or a property, you usually hear statements like “consider getting pre-qualified” or “you should get pre-approved” for a mortgage. This article will help you understand what exactly they mean by that and what are its pros and cons, because when you plan for a long term, it’s certainly favourable for things to work in your advantage.
Before going into the technicalities of the subject, let us first understand what mortgage actually is, what are the current mortgage values in the area and some tips and tricks on the way as well!
A mortgage is a property that serves as collateral for the loan that the borrower obtains from the bank when they wish to purchase a property. Businesses and individuals make use of mortgage properties to buy a certain property without having to pay the whole price of the property in one go. The mortgage property stays with the seller till the loan is cleared off completely. A mortgage is also known as “claim on property”, and if, at some point of time, the borrower fails to pay back the loan, the lender can foreclose the property.
After you decide upon a property that you are interested in buying, the process of mortgage begins. The property lender at this stage asks you to fill out an application, which asks you for documentation related to your assets, incomes and existing loans. This helps the lender in determining whether or not you are capable of repaying the loan that you are willing to take.
After the approval of the filed application, the lender offers a certain amount of loan with a specific interest rate. This is the stage where you need to get yourself pre-approved or pre-qualified for the mortgages.
First and foremost thing that an individual should know about getting pre-qualified is that this process does not ensure you getting a loan, or boost your chances for the same. Like we said before, a mortgage is just a factor to determine if you’re capable of paying back what you asked for.
Getting a pre-approval for mortgages is like a ‘practical exam’ for your investments and finances. Lenders will look into various matters deeply to ensure that you’ll repay the mortgage. Some factors that they’ll likely look into can be your credit history, your credit score, debt-to-income ratio, assets and liabilities, employment history, and most important of all, your INCOME.
It’s important to understand that getting pre-qualified and getting pre-approved are two different aspects of the same thing.
A mortgage pre-qualification is an approximation of how much you can afford to spend on your property, and is a way of determining what all you can afford and while listening to proposals; you don’t feel a burden of repayment. The lender, here in this stage, won’t verify your finances or credit information, and instead, it’s just an overview of your income, debts and finances to your lender.
A mortgage pre-approval on the other hand, is a strict documentation where you fill out a mortgage application and provide sources from where the lender can do a hard credit check. It is more of a practical process, unlike pre-qualification, which is just an analysis. The lender here analyses and determines your capability by looking at your credit score to assess your creditworthiness.
Mortgage pre-approval applications are usually valid for 60-90 days. An expiration date is put on each application because the credit score and finances are variable with time. You’ll have to fill out a new application after the passing of each expiry date.
Seeking a pre-approval six months to one year in advance will give you a kick start and it’ll be comparatively easy for you to identify credit issues and give you time to resolve them. You’ll have some spare time to save for down payments and closing costs as well.
A pre-approval letter is issued to you within 10 business days after you have provided all the requested information.
By now, you must have established how important it is to get pre-qualified for the mortgage process. It’ll always work in your favour and it will be easier for you to hunt for the property that is in your budget.
When you’re shopping in a competitive market, a pre-approval can always work in your favor and provide you preference on a priority basis. A pre-approval is like a confirmation of the fact that you can get financed for the amount you are proposing.
Pre-approvals also gives you time to sort out issues in the future and you are not stuck in dealing with delayed closing of proposals. Once you have had your offer accepted, you can just focus on getting ready for your shift.