When you decide to elevate your living standard and buy a home, one of the first things that might come to your mind is “Finding the right property.” That sure is a necessary part of your home-buying process.
But before you do that, the big question to ask yourself is, “What is my property budget?” Or, in other words, “How much finances can you get?” You can get the answers if you know how about the mortgage loan you will get from the lender.
There are two ways to know the loan amount before you actually opt for one, mortgage prequalification and mortgage preapproval.
Difference between Prequalified and Preapproved Mortgage
From a language point of view, prequalified and preapproved might look like having the same meaning. If you do, you are not alone. Many people interchangeably use the terms.
Both these terms refer to the lenders reviewing whether you, the borrower, meet the minimum requirement for a mortgage. But having said that, these terms are different in many ways. That is what we will talk about.
What is Mortgage Prequalification?
The lender assesses your financial mortgage repayment ability.
The financials that the lender might be interested in include your income and debt. This is to know your debt-to-income ratio. Having a low debt-to-income ratio is a good indicator as it shows you are good at managing and repaying debt.
Remember, the lender does not go into detail when checking your mortgage prequalification. That is the reason that passing the prequalification takes less than the mortgage pre-approval process.
One significant thing to know about prequalification is that even if you qualify, it does not guarantee that you will get the loan. It is about getting an estimated loan that the lender will finance.
What is Mortgage Preapproval?
Once you are prequalified for a mortgage, you might want to get pre-approved now. This is a much more extensive and time taking process as compared to the prequalification. The lender does a thorough financial background check and evaluates the necessary documents.
Evaluating your credit report is another major requirement on the lenders’ checklist. This helps them know about your transaction history, credit score, credit utilization, and other financial activities. To access the credit report, lenders require a hard inquiry, which can temporarily reduce the credit score.
The lender may also be required to show their tax returns for recent years.
Similar to a prequalified mortgage, preapproval is not a guarantee to get the loan. But you can get a more accurate loan amount estimate, which you can get from the lender.
Additionally, a preapproved mortgage can show your seriousness to the seller for buying the property.
What are the Benefits of Prequalified Mortgages?
If you go for a prequalified mortgage before buying a home, you can enjoy a long list of benefits. Here are some of them
Stand Out
You might not be the only willing homebuyer the seller will have. So, being prequalified for a mortgage can help you be more prominent among all the offers the sellers will get.
You will have a better chance to secure your desired property instead of seeing someone else strike the deal.
Faster Loan Process
After being prequalified, you will understand the basic requirements to meet for your approval. And since you have already provided the basic information, it will save you a lot of time when waiting for the process to complete.
The lenders can now move to the document verification process. The sooner your loan is approved, the sooner you can get into the property you can.
Better Budgeting
The prequalification process can be a much-needed wake-up call for you. You can get the approximate loan amount, which can tell you how much financial asset you can play with. This gives you a clear picture of your home budget, and you choose the property that can meet that budget.
Better Negotiation
Being a prequalified buyer will tell the seller that you mean business and are serious about buying the home. That is because you have gone through the necessary step needed to secure financing.
This increases your negotiation power, and you buy the home for a favorable price.
What are the Benefits of a Preapproved Mortgage?
Do you think being a prequalified borrower was good? Time to check out what being a preapproved borrower has to offer.
Address the Issues
If you officially file a loan application, you might be disapproved due to reasons like your credit score not being up to the mark. When you are pre-approved, you will know if your credit score does not meet the requirement for getting the loan.
You will have the time to improve your credit scores and have a better chance of having your loan approved when you opt for it.
Secure Favorable Rates
One of the biggest concerns lenders have when they approve the loan is that you will default. That is the reason they have high-interest rates to mitigate the financial blow if you are not able to repay the loan.
But once you are preapproved, lenders can assess your mortgage repayment capabilities. That means the lender can guarantee low and fixed interest rates for a period. This can be helpful if the market condition changes and the interest rates rise. You can still enjoy fixed interest rates.
Manage the Documents
There is a lot of documentation involved when you need to opt for a loan. But guess what? These are the same documents you will need when being preapproved for a mortgage. So, when it is time to visit the lender for loan approval, you don’t have to search for all these documents.
This can save a lot of time and ensure you are able to get into your desired property early.
Realistic Hopes
If you start the home search without knowing about the finances and choose a home that does not meet your budget, it can lead to heartbreak. That is where being preapproved helps you make better decisions and look for the property that is within your budget.
Summing it up
Before stepping into the battle, you should always carry the right weapons. For the battle to buy your favorite real estate, the weapon you need is knowing the loan amount that the lender will provide.
Your question is answered after you are prequalified and prequalified for a mortgage. Once that is done, it will be time to begin a property search, and HAR can be the perfect starting point.
We are a reputable real estate that ensures a smoother way to buy a home.
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