Why Loan Pre-Aproval Is a Smart Idea

FRAMINGHAM, Mass. - Feb. 23, 2015 - PRLog -- Any home buyer – and particularly first-time home buyers – can have a lot of questions about the ins and outs of buying a new house. The financing of a new home can seem particularly complicated at the outset. Buyers might have questions such as: "Where do I start," "What type of loan am I eligible for," and "How much home can I afford?"

The answers to all these questions can be uncovered at the first meeting with a qualified loan officer, and one of the first steps to obtaining home financing can also help answer many preliminary questions: the initial and essential step of getting pre-approved for a home mortgage loan.

Here are three questions – and answers – that can help a prospective home buyer understand the importance of the pre-approval process:

What is a mortgage loan pre-approval?

It's important for home buyers to understand the difference between a loan pre-qualification and a loan pre-approval.  A pre-qualification is an educated estimate on the part of a lender of the type and amount of loan for which you might qualify. This estimate is based on some basic financial information that you provide to your lender. A pre-qualification is really just a jumping-off point; it is not a rigorous assessment of your buying power and loan eligibility.

A loan pre-approval is a much firmer confirmation that a lender will extend you the financing you need to purchase a home. In order to obtain a pre-approval, your loan officer will have you complete an application with your employment and income information, as well as performing a credit check to review your credit history. Armed with this information about your income, current debts, borrowing history and credit, your lender will run your eligibility through the automated loan underwriting software to determine whether you are a likely candidate for a mortgage loan. Your loan officer will then be able to provide you with a pre-approval letter, which is an assurance that you will be able to obtain home financing. You will include this letter when you make an offer on a home.

What do I need to do to become pre-approved?

First things first: Ask around to friends and family that have had an outstanding experience with a reputable lender.  Interview the lender to make sure you feel comfortable with moving forward. Having a knowledgeable and experienced loan officer that you can work with is essential so they can help streamline the home financing process for you. Make sure that you find a lender that not only provides competitive interest rates, but also delivers stellar customer service and is committed to working for you.

Your loan officer will meet with you to discuss loan options and collect your personal and financial information. Expect to provide earnings statements or pay stubs, employment history, a record of your debts, bank statements, information on other investments and holdings, and other key information that your lender will use to determine your loan eligibility and risk.

What does a pre-approval letter gain me?

Having a pre-approval letter in hand at the outset of your home search can point you in the right direction when targeting homes that are within your price range. If you fall in love with a home and want to swiftly make an offer on it, having a pre-approval letter in hand can make your offer look more serious to a seller. You'll be a better risk to buy a home if you have already taken the necessary measures to obtain financing from a lender. And best yet, you'll be well on your way to having financing at the ready the moment you need it.

TIP: Make sure you are working with a lender that has the ability to turn around a customized pre-approval quickly with both the property address and the exact purchase price you are offering for.  Sellers don't like to see you can afford more than what you are offering, especially when you are coming in at a lower number then the listing price.

Getting pre-approved for a home mortgage loan is an important early step in the home buying process that can provide you both direction and peace of mind as you embark on your home search. For more information about obtaining loan pre-approval, speak with your loan officer about your options, and with any luck, you'll be on your way to owning a new home in no time.

For more information, visit www.YourMortgagePlannerForLife.com