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Mortgage Preapproval: why it's a good idea and how to do it
Just the way an aged person would like to make their funeral plan years ahead to prevent paying an exorbitant fee in the future, prospective homebuyers too has to take a similar step if they don’t want to fall victim to the ever-increasing rates of mortgages. Planning in the mortgage world, though, is all about going through the preapproval stage – a stage where you discover how much house you can buy, how much loan you can take, what documents you need, and what possible challenges you’re likely to face.
When most people want to start their home buying process, it is not uncommon to see them calling in a realtor, checking pictures of the beautiful homes in their target region, and choosing their favourite structures. While this may seem like a decent move at first glance, it isn’t. As long as you plan on taking a loan to fund the purchase of the home, getting preapproved should be the very first step you take before checking any home out. This stage of the home buying process is so crucial because it lets lenders that you're a savvy borrower who may soon be taking out a mortgage. It tells estate agents, who work on a commission that spending time on you could well pay off with a transaction. And it alerts lenders that you have the borrowing power to fund any loan you take.
In short, getting preapproved shows to the lender that you are serious about buying a home, and it further assures them that you're a credible borrower, and they wouldn’t need to start chasing you with bailiffs like Wescot because you have what it takes to fulfil your mortgage repayments if you take it.
Why get preapproved for a mortgage?
To determine the types of homes, you can afford
When your house hunting, it’s quite easy to get caught up in the excitement of the search and look at homes that are outside your budget. Getting preapproved, however, helps you set a realistic target. Once you know how you’re likely to be borrowed, you can focus on homes within that price range. But that is not to say that you have to borrow the maximum, though – and in many cases, it’s probably best if you don’t. That’s because most lenders use your gross monthly income to determine the maximum amount you qualify for without really giving any consideration to your monthly expenses and financial emergencies. Even though you know that you can always use a debt management scheme like an IVA or IVA Scotland to resolve your loans if you can no longer pay up, do you want to go down that path? Don’t think so! In other for that not to happen, you need to make sure that you’re taking a mortgage that suits your budget, in terms of interest rates, monthly repayments, and down payments. And mortgage preapproval is the best way to determine that.
Better chances of beating competitions
When you want to buy a home, the chances are that you’re not the only interested buyer, which means that there is a competition with other buyers for the purchase of such property. For you to now beat this competition and secure your dream home, you need to prove to the home seller that you’re the most serious buyer. And the best way to that is by presenting your preapproval letter. If you have a preapproval letter, it lets sellers know that a lender has already reviewed your financial situation and conditionally determined you can afford to buy a house. This gives confidence to the seller that you're a serious buyer, and as such, takes you a level above your competitors.
It helps you identify potential problems
The biggest benefit of mortgage preapproval is that it alerts you to any potential problem in your mortgage application process. Usually, lenders review your credit score, DTI, assets value, LTI, income rate, and other necessary conditions before granting you a preapproval. While reviewing all these, they may discover some potential problems that may hinder you from getting your application approved eventually. So, once these problems are discovered during the preapproval stage, you will be alerted to make the necessary adjustments or corrections before coming back to try again.
How to get a mortgage preapproval?
Now that you understand the importance of mortgage preapproval let's now share with you some of the steps involved in executing it.
Get all the necessary documents
First thing first, once you approach a lender for mortgage preapproval, you’re likely going to be asked to present some necessary documents to verify your identity, credit history, employment history, income, and financial assets.
Research lenders
Before you approach anyone outright, you must conduct your quick survey to determine which lender to choose. While some lenders may be more flexible with their requirements, others may not be so lenient with you. And depending on your financial situation, you may want to work with a more considerate lender.
Consider working with multiple lenders
There is no crime approaching more than one lender to get preapproved. That is the best practice. Different lenders have different packages, and if you limit yourself to getting preapproved by just one, then you will be stuck with whatever that lender has to offer.
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