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No doubt you’ve heard the term mortgage pre approval. While the words may seem clear to a mortgage banker, most home buyers are totally unaware of what they mean, what the process entails, or even how to get preapproved for a home loan.
If this is your first rodeo, then it’s important for you to understand what getting pre approved for a mortgage means, what steps are involved, and how it will affect you.
| Mortgage Type | Today's Average Mortgage Rate | Yesterday's Average Mortgage Rate | Mortgage Rate 3 Months Ago | Mortgage Rate 1 Year Ago |
|---|---|---|---|---|
| Purchase 30-year fixed | 7.312% | 7.312% | 6.49% | 6.945% |
| Purchase 15-year fixed | 6.375% | 6.375% | 5.875% | 6.438% |
| Refinance 30-year fixed | 6.946% | 6.946% | 6.433% | 6.406% |
| Refinance 15-year fixed | 6.45% | 6.45% | 5.75% | 5.494% |
Home loan pre approval says that you may be eligible for a loan. There are a few major points that you have to know about mortgage pre-approval before you even get started:
1. Pre-qualification is not the same as mortgage pre approval
Pre-qualification and home loan pre approval are totally different. The first one is a general confirmation that you meet basic requirements to receive a loan. No personal information or documentation is needed.
2. Pre mortgage approval will affect your credit
When you apply for pre approval, you will have your credit pulled by the lender to see whether you are creditworthy enough to receive a loan. This hard credit pull will affect your credit score, albeit only for a short time.
3. Getting pre approved for a mortgage isn’t a guarantee of funding
This is probably the most important thing to know from the beginning. Many home buyers think that once they’ve been pre-approved, they’ll automatically be able to get a loan from the lender. This is NOT the case. Home loan pre approval simply declares that you are in a suitable financial state to be making inquiries about home purchasing. There is no guarantee, no commitment to lend on the part of the lender.
4. Getting pre approved for a mortgage is a process
To get pre approved, you’ll have to fill out a loan application, provide the required documents, prove income status, and wait for the lender to verify your information. Of course, this process doesn’t have to take long. In fact, some lenders will do it on the spot or that same day.
Today, you can even get mortgage pre approval online, without having to sit in an office, talk on the phone, or go through a long application process.
The likelihood that you will get pre approved for a mortgage online depends on several factors, including:
Before you even tackle how to get pre approved for a mortgage, you are probably wondering why you should bother. In fact, a pre approval mortgage letter offers several benefits to prospective buyers, including:
1. Being taken seriously
Today’s economy requires agents and sellers to be cautious about their potential buyers. Agents won’t waste time on just anybody today, and a seller will not sit down to negotiate with someone unless they think you are serious. A home loan pre approval letter signals to everyone that you are seriously interested, that you have already been in touch with a lender, and that you most likely have the finances to receive a mortgage loan.
A home loan pre approval letter also makes you more competitive since sellers and agents will consider you before other candidates if it comes down to multiple people making offers at the same time.
2. Points out weak spots
Even if you don’t get a pre approval home loan, the process is valuable because it shows you where your weaknesses lie. Getting a mortgage loan requires a fairly decent credit score, financial standing, and employment status. If a company rejects you for a pre approval mortgage, they have to tell you why. This information will help you clean up your credit, fix issues you have on record, and boost your appeal.
For this reason, many financial advisors recommend going for mortgage pre-approval six months to a year before you look to buy (even though pre approval only lasts three months, generally). It will give you a good insight into your borrowing status so that when you are ready to buy, your credit will be sterling.
3. Narrows down your choices
Finally, a pre approved home loan helps you narrow down your choices. This is because the pre approval will specify an amount or range that you are pre approved for. So, you can more easily find a home that is right for you knowing what your budget is.
Mortgage pre approval is a real possibility. Check out this page for some practical tips on how to get pre approved for a home loan, and start dreaming today.
