Are you looking for your dream house like me? But with rising cost most of us always want to hunt house on mortgage. For that you have to look at various Banks that can loan you money to buy your house of dreams.
When you approach any bank what they see is your source of income, your credit history with your employment and residential details. Then according to your details they ask you to fill an application form to apply for the mortgage. Application fees include “origination” (or “service”) and are flat fees. There are also appraisal, underwriting and credit report fee. When you apply for a mortgage, you’re applying for credit to purchase a specific property as well.
So in the process of getting a loan for your house you come across two financial terms often used by bankers which is Pre Approval and Pre Qualification. Those these two terms prequalification and pre-approval can boost your confidence and make house hunting easier but it’s important to understand the difference between prequalification and pre-approval.
Mortgage prequalification differs from a pre-approval in that prequalification assesses whether your debt-to-income ratio fits U.S. Bank’s program guidelines for home loans. It also provides an estimate of how much you may be able to borrow.
Mortgage pre-approval, on the other hand, involves the same steps as a mortgage application you’ll provide detailed information about your income and assets that will be reviewed by the lender’s underwriters. If pre-approved, you’ll get a conditional commitment by the lender or the bank for a specific loan amount.
Mortgage prequalification means how much you may qualify to borrow which is often more than how much you can afford to spend on your new home and still have money left over for the other important things in your life; like furniture for your new home.
Getting prequalified doesn’t require a commitment from you or the bank. As it isn’t a true application your credit history doesn’t factor into your prequalification. Even As you know that when you apply for a mortgage, your credit score will affect your ability to qualify. If you have concerns about your credit history, you can talk to your bank or the mortgage loan executive to find out what loan options might be available to you.
When you get prequalified, you can request a letter stating how much you may be able to borrow, based on the information you provided to the bank. You can give this letter to your real estate agent to show you’re a certainly a serious homebuyer.
Mortgage Pre-approval shows that you have the resources to make the purchase and it helps you act quickly when you find the perfect home. From the sellers’ point of view, a pre-approved buyer is more attractive than someone who says they can buy a house but have nothing but their word to back up their offer. By proving you have your bank’s backing, a mortgage pre-approval could help you negotiate on price and it may be a deciding factor for sellers who receive multiple bids.
Remember not to apply for a pre-approval until you’re fairly certain you’ll want to buy a home within the next 90 days. Unlike getting prequalified, a pre-approval involves requesting a copy of your credit history and an examination of your application information and the documents you provide. A pre-approval will show as an inquiry on your credit report, and it’s only good for a certain amount of time.
Also note that if you decide to proceed with the loan, you may also be required to pay an application fee and prepay for the home appraisal and other costs. An estimate of costs or fees to be paid at the mortgage closing is also determined at this stage.
To get pre-approved, you’ll need to provide some personal information and financial documents, including detailed proof of your income for the past two years.
Finally always calculate how much will your dream home cost you.
A standard rule for bank or lender is that your monthly housing payment (principal, interest, taxes and insurance) should not take up more than 28 percent of your income.
This includes Up-front costs such as down payment and application fees, Closing costs like attorney fees, On-going expenses such as property taxes, insurance and repairs
Some costs associated with buying a home show up before you start making regular mortgage payments. These could include but are not limited to Mortgage application fees, Earnest money, Down payment and Closing costs which typically range from 2% to 5% of the loan amount and can vary depending on your lender, location and property.
It’s important to be informed on all the costs involved and how much you can afford prior to committing to a home mortgage.