Today, most homebuyers don’t have the means to cover the full amount of the purchase price. The majority of homebuyers will start by talking to a lender to determine how much they can afford. Once the homebuyer gives the lender financial information, the lender will provide the homebuyer with a pre-approval letter, stating how much they can afford. From this point, the homebuyer can see home properties in their pre-determined price range. Once they have an accepted offer on a property, the buyer will apply for a mortgage loan to purchase a property through the lender.
Why would the buyer need to use a lender before seeing any property?
In today’s competitive market, it is typical for home sellers to require proof that the buyer can afford to buy their home before they are allowed to step foot in the property or make an offer.
Pre-approval vs. Pre-qualify
A pre-approval letter is a conditional commitment to grant you a mortgage loan. This letter will let you know how much you can borrow, the interest rate, loan amount, length of the loan, and other related terms. The lender will need financial information from the buyer. Once they have a buyer’s information package, they will send it to their investor, who will set the pre-qualification terms.
A pre-qualify approval is traditionally done quickly by the lender to give the buyer an idea of what they can afford. There generally are no requirements for the lender on what needs to be in this letter and who needs to approve it. Because of this, most sellers do not accept pre-qualification to prove what the buyer can afford.
Check out these four helpful tips on selecting the right mortgage lender for your next home purchase.
1) Ensure the lender is allowed to work in your state and their hours of availability work with your schedule. Local lenders generally understand the local market a lot more, making transactions go a lot smoother.
2) Make sure the lender is responding promptly to any inquires you have. Whether it is email, text, or a phone call, if the lender does not get back to you or at least acknowledge the delay, it may show they might not be a good fit.
3) Search online and check the reviews of the mortgage company and the lending agent. If there are any concerns about the reviews or lack of, it may be a good idea to ask.
4) If you think you have found the right lender and proceed to get your pre-approval letter, please read over the terms and make sure you agree, and in fact, it is not a pre-qualification letter.
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