Learn How to Get Preapproved for a Mortgage
Other documentation may also be necessary. For example, if a family member offers you money for a down payment, you must present a gift letter detailing the amount. Your lender will then go over these documents and utilize the information to assess how much money they are willing to lend you.
2. Credit Review
Your lender will also do a credit check and thoroughly examine your credit score. By checking your credit, your lender will be able to discover how much debt you currently have, if you’re current on payments, and the types of debt you’ve had in the past. Your credit report also informs your lender about how you’ve managed debt repayment in the past.
If you’ve made on-time payments and paid off many of your debts, your lender will likely consider you a relatively safe borrower. If you’ve previously struggled to make minimal payments or defaulted on loans, they may be less reluctant to offer you money.
Following the completion of these processes, your lender will determine how much money they are willing to lend you and the interest rate on the loan. This provides you a good indication of how much house you can afford before you make an offer on one. That amount will be noted in your preapproval letter, which you will be able to offer to the seller of a property you want to buy as proof of your preparedness and credentials as a home buyer.
Prequalification vs. Preapproval of a Mortgage
It is vital to distinguish between preapproval and prequalification. Understanding the distinction can aid you in the home-buying process.
Prequalification for a Mortgage
Your lender does not pull your credit or check any of your financial information when you get prequalified. Instead, companies utilize the information you submit, together with a soft credit check (one that does not affect your credit score) or none at all, to estimate how much you would qualify for in a mortgage. That figure is only an estimate, and it could be higher or lower depending on what the lender discovers through a complete investigation of your financial history.
While mortgage prequalification can be used to make an offer on a home, it is not always a wise idea. If you make an offer on the house but are not approved for the whole amount, you will lose the house. The ideal approach to using a prequalification is to assist you in exploring your mortgage options and selecting the appropriate loan type for your circumstances.
