In this episode of Lock Rate’s Fast Mortgage Insight, I cover home purchase preapprovals. Again, there’s so much to know about this topic and it is not possible to cover everything there is to know about preapprovals in a short video.
If you are thinking of buying a home, and you are not paying all cash for it, you will need a mortgage loan. In this hot seller’s market, many if not most Real Estate Agents will ask you to provide a preapproval letter from a mortgage letter. Real Estate Agents do typically do this because they want to make sure that they are pointing out homes for sale that are within your purchase power.
A preapproval is a letter from a lender stating that you qualify for a mortgage. Proper reapproval normally starts with you completing a mortgage application and allowing the lender to run your credit report. Your credit report is very important not only because it provides us with your FICO scores, but because it allows lenders to accurately calculate your debt-to-income ratio.
Your debt-to-income ratio is a percentage that expresses what portion of your income is taken up by your monthly obligations being reported in your credit report. It does not include your monthly bills such as utilities, Netflix, etc. I will make sure to make a video in the future to cover debt-to-income ratios.
Once a borrower has completed an application and allowed the lender to run credit, the lender should be able to find the right mortgage program for the borrower’s situation. At that point here at Lock Rate Mortgage, we would ask you to provide documentation that supports the borrower’s income stated in the application. Not every lender will do that. It requires a little more work up front, but we would not do it any other way because it will protect our client’s interests.
Imagine a scenario in which a preapproval letter is issued, your offer for the home of your dreams is accepted and you put down a deposit. You later find out that your income was miscalculated and that you do not qualify for the full loan amount you require. Not a good situation to be in. While you might be able to still make things work, the last thing you want in a home purchase is nasty surprises.
Now that you have submitted an application and your supporting documents, we can issue you a preapproval letter. Typically, your preapproval letter will consist of the details of the transaction, such as purchase price, down payment, loan amount, and monthly payment.
Congrats! You can now take that letter to your Real Estate Agent and start shopping for your new home!
Again, this is a short overview of the process. Like always get a hold of us if you have any specific questions. Please don’t forget to like, share, subscribe, and hit that bell to get notified of future videos.
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