Why Every Home Buyer Should Get Mortgage Pre-Approval

What is the benefit of having a Mortgage Pre-Approval when looking for a new home?

There is a difference between a Mortgage Pre-Qualification and a Mortgage Pre-Approval.

A mortgage pre-qualification is based on the information you verbally give to your loan officer to  get a snapshot of how big a house you might afford and how much money you can afford to borrow to buy it.

A Mortgage Pre-Approval is an application file reviewed by an underwriter to be sure your income; assets and credit history qualify you to get the loan you are applying for.

Knowledge is Key:  A Mortgage Pre-Approval gives you a firm idea of how much house you can afford. The underwriter bases this amount using a formula that compares your income to your total outstanding debt.
The Debt:Income Ratio (DTI) is derived from the monthly payments that show up on your credit report and the income documents you surrendered as part of the process. This will keep you focused on the big picture and help to prevent being disappointed if you fall in love with a home that is too expensive.

Improve Your Negotiating Position:  When a seller is comparing two offers and one of the buyers has Mortgage Pre-Approval there is a high confidence level that the deal will go through and close sooner. This may help you to win in a competitive bidding situation.

Confidence in Your Offer:  Knowing that the key information in obtaining a mortgage has been reviewed by an underwriter will give you, and the seller, confidence that your offer is bona fide.

Keeping Your Spending On Track:  Having detailed information on your interest rate, mortgage payment, closing costs and down payment requirements will help you stay within your monthly budget.

Time is Valuable:  Knowing what you can and cannot afford can save you time and frustration in the house hunting process. This will help your Realtor find the perfect house in your price range.

Move in Quicker:  Having Mortgage Pre-Approval will save you time when you submit your complete mortgage application for approval. Everything has been done beforehand. All you need is and inspection, appraisal and closing documents. The faster you close, the sooner you can begin to enjoy your new home.

If you are looking to buy a new home, a Mortgage Pre-Approval is the smartest way to get into your new home. Call Me at 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my  FREE Jump Start Mortgage Pre-Approval service.

Mortgage Underwriting: Understanding How It Works

Mortgage Underwriting is the process of verifying information about your employment, income, assets, debts, and credit history to determine if you can afford to pay back the mortgage loan you are applying for.
Mortgage Underwriters also verify that the size of the mortgage you’re applying for is reasonable compared to the value of the property you’re buying or refinancing.
Sound underwriting helps ensure that you qualify for a mortgage loan that you can afford to repay and it gives lenders the confidence to make mortgage money available to people who want to buy or refinance a home.

The Mortgage Underwriting process is basically divided into three parts:

1:  Gathering and Verifying Your Information
Your lender, or your lender’s loan officer, collects and verifies your personal information, from your employment history to your outstanding debts.
You’ll be asked to give your lender permission to independently verify your information and obtain copies of your credit history.
Here’s a short list of the information you will need to begin underwriting your mortgage.
♦   Employment: You’ll be asked to document your current employment status and provide your job history, including the length and terms of employment.
♦   Income and Assets: Income is used to calculate the size of the mortgage you can responsibly afford and the size of the down payment you’ll need. Expect to provide proof of your primary income, such as copies of your W-2. You’ll also be asked to document other income sources and assets the underwriter may be able to use to evaluate your mortgage eligibility. Assets can include anything from bank accounts, retirement funds, investments and rental property, to your car.
♦   Debts: A list of your current debts – such as credit cards, auto loans, student loans – is needed to calculate your debt-to-income ratio. Underwriters use this ratio to determine if your available income will enable you to continue paying your outstanding debts and a new mortgage payment.
♦   Credit Report: Your credit report from  independent credit bureaus(Experian, Equifax,  and TransUnion) includes a record of your previous credit transactions … aka your credit history: plus a credit score based on proprietary formulas developed by the respective bureaus This information is used to help determine your creditworthiness and the likelihood that you’ll repay your mortgage. 

2:  Verifying Property Information
The appraised value of the property is another critical factor for determining how much you can borrow. Your lender will have the property you hope to buy professionally appraised to assess its physical condition, the condition of the surrounding site and neighborhood, and its value. 

3: Putting It All Altogether
Finally, the Mortgage Underwriter reviews all of your information, either manually or with the help of an automated underwriting system to determine
a.)   your financial capacity to repay the mortgage, and
b.)   whether or not the mortgage you’re applying for, and the house you hope to buy or refinance, meets your lender’s requirements

Follow this blog to learn more about how things work in the mortgage industry or visit My Home by Freddie Mac^SM  for additional information.