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How to Get Pre-Approved for a Mortgage

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Before you begin looking for a home, get pre-approved for a mortgage so you know what your budget will be, and so that are ready to make a competitive offer.

Keep reading to find out why pre-approval is important, and how to get pre-approved for a mortgage.

What is Mortgage Pre-Approval?

A mortgage pre-approval is the process of determining how much a lender will allow you to borrow to buy a home. By looking at your credit score, assets, and employment and income history, a loan officer will be able to tell you what you will likely be able to borrow.

Why Get Pre-Approved for a Mortgage?

Some people want to wait to get pre-approved for a mortgage until they have started to look for houses. In a buyer’s market, this might not be an issue.

However, in a seller’s market like we have seen for the past couple of years, and like we anticipate for the remainder of 2022, looking for a home without pre-approval usually means a lot of disappointment. Many agents will decline to work with you without a letter of pre-approval because it is so likely to be a waste of time. Without the ability to make competitive offers and view homes that are realistic potential homes, shopping for a home will be a stressful process.

When you get pre-approved for a mortgage before shopping, there are two major benefits:

  1. You will know your budget. The budget you think makes sense and the budget your lender will give you may differ. Your interest rate will be one of the most significant factors determining the loan amount you will be pre-approved for, and the only way to find out what it will be is to have a loan officer review your financial health through a look at your credit score, income, assets, and more.
  2. You won’t have to wait to put in an offer. In a real estate market like we are seeing right now, many properties are receiving multiple offers within days of listing. If you see a home you would like to put an offer on and have to wait to do so until you get pre-approved for a mortgage, it is likely that your offer will be too late. Make sure you do things in the right order to avoid wasted time and an emotional roller coaster.

How to Get Pre-Approved for a Mortgage?

Getting pre-approved for a mortgage is easier than you may think. It should not take much of your time, and gives you a completely essential tool for the home buying process.

1. Contact a loan officer

The first step to get pre-approved for a mortgage is to contact a loan officer. Don’t worry about being fully prepared with all your documentation at the first phone call. Your loan officer will let you know what you need to provide and walk you through the pre-approval process.

2. Provide documentation

Your loan officer will ask you questions about your income and assets, and will pull your credit score. While this credit pull will bring the score down minimally, it’s an essential part of the process and is not something to worry about. Documentation your loan officer is likely to ask for might include:

  • Last year’s W-2s and tax returns
  • Recent pay stubs
  • Bank statements for all assets
  • Child support documentation

3. Get pre-approved and begin looking for a home

After getting your pre-approval, you will know what your house shopping budget is. Provide this information to your agent and begin shopping for a home.

Don’t forget to make note of when the pre-approval expires. 60-90 days is a standard expiration time period for mortgage pre-approval, so if you haven’t had an offer accepted in that time or whatever is stipulated on your pre-approval letter, anticipate going through the pre-approval process again.

For more information about buying a home, contact us today! We have a team of friendly and knowledgeable professionals who would love to help you.

More Great Tips for Buyers:

5 Benefits of Buying a House with Good Credit

The Most Important Steps Toward Buying Your First Home

First Time Homebuyer Mistakes to Avoid

What Determines Your Mortgage Rate

Are No-Document Loans Available in 2022?

5 Benefits of Buying a House with Good Credit

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As you prepare to buy a home, reminders of the importance of your credit score will be everywhere.

Credit scores tell your lender what kind of borrower you will be, and are one of the main factors that determine your mortgage terms.

There are many benefits to buying a house with good credit! Keep reading for some of the perks you can expect as a home buyer with a good credit score, and for help improving your credit score before buying a house, check out these tips.

1. Lower mortgage insurance rates

When you buy a home with a down payment less than 20%, which is often the case for first time home buyers and can be a great way to get into a home, you will almost always pay private mortgage insurance, or PMI.

There are a few different ways PMI can be paid. Single premium PMI is paid upfront, whether in cash all at once or through financing options. Monthly PMI is the most common form, and is paid monthly when you make your mortgage payment. A split premium PMI is a hybrid of the two, where some of the insurance is paid up front, while the rest is added to the monthly mortgage payment. Finally, some lenders offer lender paid PMI, where the lender covers the cost of PMI in exchange for a slightly higher interest rate on the loan.

The most favorable PMI options, including the lowest premiums, will be offered to borrowers with excellent credit scores. This is one way in which buying a house with good credit pays off, literally.

2. Lower interest rate

The interest rate on your mortgage is likely the term you are most concerned about, and that is for good reason. An interest rate change of just half a percent can make a significant difference, equally thousands of dollars over the life of the loan.

Buying a house with good credit means access to the lower interest rates your mortgage lender has available.

3. Better homeowner’s insurance rates

When buying a house with good credit, your credit score will even affect your homeowner’s insurance premiums. Excellent credit opens the door to lower insurance premiums, as well as different insurance options.

Remember: your good credit is your financial reputation to agencies when they decide whether to work with you.

4. Easier, sometimes faster underwriting approval

Underwriters have the important job of reviewing your mortgage application to determine whether you are likely to make your monthly mortgage payments for the foreseeable future. If you don’t have a strong credit score, underwriters will need plenty of other evidence that you are capable of making these payments.

On the other hand, buying a house with good credit shows the underwriters that you have a history of taking on debt with payments you can handle. You may receive final approval faster than you would with a lower credit score.

5. Additional loan options

Looking at more than one mortgage option is a smart financial move. Depending on a variety of factors, you may be able to choose between a conventional loan, an FHA loan, a USDA loan, a VA loan, and more. The better your credit score, the more options will be available to you. When you are buying a house with good credit, you loan officer will be able to show you a longer list of loan options in order to help you find exactly the right mortgage for your needs.

To find out how much you might be pre-approved for, schedule a conversation with one of our loan officers today! And for more information about buying a home, contact us any time.

The Most Important Steps Toward Buying Your First Home

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buying your first homeBuying your first home can be intimidating, but it doesn’t have to be.

With the right information and the right mortgage team on your side, you can become a homeowner, possibly sooner than you think!

Who Qualifies as a First Time Homebuyer?

According to the U.S. Department of Housing and Urban Development (HUD), you qualify as a first time homebuyer if:

  • You haven’t owned a principal residence for at least three years. If you have owned a home, but your spouse has not, then together you qualify as first time homebuyers.
  • A single parent who was formerly a homeowner while married to an ex-spouse.
  • A displaced homemaker who has only owned a home with a spouse.
  • Anyone who has only owned a property that was not in compliance with state and local building codes, where bringing the property up to code would cost more than constructing a new comparable property.

Do First Time Homebuyers Qualify for Extra Perks?

Buying your first home comes with lots of perks, some available only to you as a first time homebuyer. There are tax benefits and unique mortgage options set aside exclusively for first time homebuyers.

Tax Benefits

Homeowners general enjoy tax benefits, like deducting their mortgage interest payments at tax time. You will also be able to deduct your property taxes, private mortgage insurance fees, and any points and fees you pay to obtain your mortgage origination.

Federally Backed Loans and Grants

First time homebuyers have access to federally backed mortgage options through the FHA. These options include:

  • Closing cost assitance
  • Down payment assistance
  • Lower down payment
  • Down payment grants

Down Payment Options

First time homebuyers have many options for down payments. A few of your options are:

  • Exemption from the 10% penalty if you want to withdraw from your IRA for your down payment
  • Down payment options of 3.5%, 3%, 0.5%, or even 0%, depending on which programs or grants you qualify for
  • Down payment assistance in the form of a loan or a grant

If you aren’t sure what you would qualify for, talk to a loan officer! To find out why your credit score matters, check out this article.

Steps to Buying Your First Home

If you are thinking about buying your first home, there are a few steps to take before you begin shopping.

Evaluate Your Financial Health

Get an idea of what mortgage options will be available to you by taking a look at your financial health. Look at your savings and figure out how much you are ready to use for a down payment and closing costs.

Check your credit score. If it’s below 670, you may want to take a few months to focus on bringing it up in order to qualify for the more favorable terms.

Talk to a Loan Officer

After you have an idea of your budget and your overall financial health, the next step to buying your first home is talking to a loan officer. They will be able to help you anticipate what types of mortgages will be available to you and whether now is the right time to apply.

Get Pre-Approved

Next, apply for pre-approval! It’s important to do this first, before looking for a home. In order to make a competitive offer on a house, having mortgage pre-approval in hand is an absolute must.

This pre-approval will also give you a firm boundary for your budget to help you decide which homes on your wish list represent a realistic price for your financial situation. A pre-approval letter will be your best friend as you search for your first home.

For more information about buying your first home, or to take steps toward mortgage pre-approval, contact us today!

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Steelman Mortgages Powered by Answer Home Loans Company NMLS ID: 1729528. All information contained herein is for informational purposes only and while every effort has been made to ensure accuracy, no guarantee is expressed or implied. Any programs shown do not demonstrate all options or pricing structures. Rates, terms, programs, and underwriting policies subject to change without notice. This is not an offer to extend credit or commitment to lend. Although and subject to underwriting approval. Some products may not be available in all states and restrictions apply.