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Mortgage Prequalification and Preapproval Why get prequalified and then preapproved for a mortgage before you begin your search for a home? Because there are 3 people who will benefit from your preapproval: You, your Agent, and the seller from whom you eventually buy a home! You: The most important beneficiary, of course, is you. One of the most common questions we get from users of this site goes something along the lines of "Please let us know how much house we can afford." We're stumped! Why? There are simply too many variables--credit history, income, debt, special mortgage programs and variations in qualifying guidelines between different mortgage types--to answer that question. The only sure way of getting the question answered is through prequalification. The mortgage prequalification step is a relatively simple one, but it is an important one. It begins the process of formally applying for a mortgage, and it gives everyone involved--especially you--a clear sense of the direction they should be headed. Your Agent: By knowing what your financial parameters are, your Agent can spend more time looking for houses that "fit" and less time pursuing dead ends. No matter how much you might want a 4000 square foot home for $275,000, if your qualifications say $125,000, your qualifications say $125,000. When it comes to mortgages, "yes, but" doesn't carry much weight! The Seller: Want to strengthen your bargaining position? Get prequalified. Want your offer to stand out in a case of multiple offers for the same house? Get prequalified. Look at it from the seller's perspective. If you had 2 offers on the table for your house, one from a fully prequalified buyer and the other from an "I'll get around to that soon" buyer--to which offer would you devote the most attention? Even if the prequalified buyer's offer was $1000 less, would you take the chance on the buyer that perhaps may not be qualified? When it comes to a seller evaluating offers, "a bird in the hand..." definitely applies. It is important to remember that the amount of mortgage you will qualify for is the maximum. It is the amount that the lender feels you can afford, but it is not necessarily the amount that you want to pay. It sometimes is advantageous to be conservative here. For example, if you qualify for a $100,000 mortgage and you have $15,000 available in cash for downpayment and closing costs, you are qualified to buy homes with a maximum selling price of $115,000. So as to not push yourself to the limit, you may want to look at homes that sell in the $100,000 to $110,000 range. Too many buyers simply rush off to the $115,000 level and some find themselves strapped when it comes time to purchase necessary items (such as draperies, additional furniture and lawn and garden tools, for example) or when they forget to factor in increases in monthly expenses (for example utilities and maintenance and repair costs). Finding Preapprovals: Virtually every lender will be able to process preapproval for you, or you can use the power of the Internet and begin the process of preapproval. |
| Please feel free to contact us and a loan specialist will put together a program thats right for you. |
| Definition of Terms Interest-Only: This type of loan is most popular with homeowners who have homes that are appreciating in value and who want the lowest payment possible. Qualified borrowers make interest-only payments with the choice to make higher payments in order to reduce the principal. There is a variety of options, including making interest-only payments during the first 3, 5, or 7 years of these mortgages. Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate is adjustable periodically based on a pre-selected index. This often has lower monthly payments, and it also has a ceiling above which payments cannot go. Debt Consolidation: A loan which combines monthly bills (for example, high interest credit cards and car loans) into one new low low-interest home loan with one low monthly payment. This type of home loan can save a borrower hundreds of dollars every month Fixed-Rate Mortgage: A mortgage in which the interest rate will remain the same throughout the entire term for the original borrower. Home Equity Line of Credit (HELOC): A loan for which you can either receive a large sum of money or have an open line of credit that can be drawn as it is needed, with, typically, low interest rates. Purchase Loan: A loan to purchase a home. Refinance: A new loan made to a borrower who currently owns a property or has a first mortgage on it. Refinancing either pays off the existing mortgage with a new first mortgage, or a second mortgage is made in addition to the existing first mortgage |
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