Getting a mortgage qualification letter prior to looking for a new home with an agent is an essential first step in the home buying process.
Besides providing the home buyer with an idea of their monthly payments, down payment requirements and loan program terms, a pre-approval letter gives the seller and agents involved a better sense of security and confidence that the purchase contract will close on time.
Just how much can I afford?
Let’s start with the most commonly asked question regarding mortgage. Getting a pre-approval letter for any new home purchase is mostly to let everybody concerned in the transaction know what kind of mortgage money the purchaser is approved to borrow from the lender.
The pre-approval letter is predicated on loan program guidelines relating to a borrower’s DTI, LTV, credit, property type, and residence status. A complete pre-approval letter should let the borrower understand the exact conditions of the loan amount, down payment requirements and monthly payment, which includes principal, interest, taxes, insurance and any additional mortgage insurance premiums.
One of the most essential items to keep in mind when searching into financing is that there is sometimes a distinction in the amount a borrower can be eligible for vs what’s in their budget for a comfortable and responsible month-to-month payment.
7 items to check for in a pre-approval letter
- Loan Amount – base loan amount and probably gross loan amount (FHA, VA, USDA)
- Status date and expiration date – the majority of pre-approval letters are good 90 days from when credit statement is run
- Mortgage Type – FHA, VA, USDA, traditional, jumbo
- Term – 40, 30, 20 or 15 year fixed, ARM (Adjustable Rate Mortgage); if ARM – 3, 5, 7 or 10 year original fixed period; Interest Only
- Occupancy – owner occupied, secondary residence, investment
- Contact info – lender’s vame and address
- Conditions – document and funding requirements prior to acceptance.
Note that a pre-approval letter is not a guarantee for your loan to get approved when you get into contract for buying a house. The final approval is still subject to property condition, appraised value, title report and any other conditions that the loan underwriter may have at that time.
Sometimes, rules and guidelines change very quickly. Hence it’s important to remain in touch with your loan officer even after you are pre-approved to make sure you are not adversely impacted by any guideline changes.
Looking to finance your home? Check out our step-by-step guide here!