The Pre-Approval Process for Mortgage
Pre-approval will make it easier to close the deal on your dream house.
Having a mortgage pre-approved can make buying a home lot easier. If a seller has more than one offer, showing him your lender has pre-approved the amount of your bid could be a deciding factor in your favor. It also will help you decide what price range to shop in, and, once you find a house, it will save time in closing because some of the paper is already done.
Even some real estate professionals confuse pre-qualifying for a mortgage with pre-approval, according to Realty Times. When you pre-qualify, you describe your financial situation to a lender and get an estimate of how big a mortgage you would qualify for. To be pre-approved you have to document your financial situation; because your claims will be checked and verified, pre-approval carries more weight.
Before pre-approving you, a lender will want proof of your income, in the form of a couple of years of federal tax returns, recent bank statements, and recent pay stubs or investment income statements. A lender also will want copies of credit card statements and other monthly debts to see how much of your income is already obligated. In this way the lender will learn how big a monthly payment you can handle.
The end result of the pre-approval process is a letter stating the size of the mortgage you've been pre-approved for. This is not a guarantee of a mortgage, Realty Times says. Changes in interest rates before you close could result in your lender reconsidering. But you can use the letter as proof to sellers that your offer on a house has a good chance of going all the way to closing.
Mortgage fees are typically 2 to 7 percent of the home price, according to Freddie Mac, a government-sponsored corporation that supports the mortgage loan market. Fees include the cost of processing your application, underwriting the loan, making a credit check, conducting a title search and having the house appraised. Ask your lender for a good-faith estimate of the closing costs to make sure you're prepared to pay them.
You can ask more than one lender to pre-approve you, and compare interest rates and fees. You may have to pay each lender, though, at least for the cost of a credit check.
by Fraser Sherman, Demand Media