Owning a home begins with a financial plan and one of the most important parts of the home buying process is mortgage pre-approval. Pre-approval not only informs you the amount you can borrow but also assure sellers that you are a potential buyer. When you are with Middlesex Healthcare Federal Credit Union (MHFCU), we will help you get through the pre-approval process as smoothly and easily as possible.
What does Mortgage Pre-Approval mean?
Mortgage pre-approval is also the promise from a specific lender to make a certain amount of money available for buying a house on condition. Compared to pre-qualification that is just a preliminary prognosis, pre-approval prescribes a deeper analysis of your financial past, credit rating, and income.
Benefits of Pre-Approval:
- Reminds sellers that you are a serious buyer.
- Assists you in getting an idea on your budget.
- Simplifies the buying process by pointing out likely sources of financing problems at an early stage.
How to Get Pre-Approved
- Check Your Credit Score
The interest rate you will be charged and your eligibility will depend on your credit score. Standard requirements when it comes to credit scores are usually set at 620 for a conventional loan, although better scores will get you a better rate.
Tips for Improving Your Credit Score:
- Bring down credit card balances.
- Do not apply for new credit accounts before applying for a loan.
- You should look through your credit report for any mistakes.
Visit AnnualCreditReport.com to obtain a free copy of your credit report.
- Gather Financial Documents
To establish creditworthiness, the lenders need to be presented with proof of your income, assets, and liabilities. Prepare the following:
Income Verification:
Those are pay stubs, tax returns and W-2s or 1099s.
Assets:
Check and investment account statements.
Debt Obligations:
A list of Interest only loan balances, credit card balances, other monthly installments.
At MHFCU, we do make this process easier by offering you a list of documents needed when applying for a loan.
- Calculate Your Budget
You must know how much you are willing to spend to avoid getting carried away by houses that are a bit higher than your financial capacity. Your DTI or debt to income ratio is calculated by your monthly obligations divided by your gross monthly income.
General Guidelines:
- Aim for a DTI under 43%.
- The sum of principal, interest, taxes, and insurance payable for the house you want to buy should not be more than 28 percent of your gross income.
To know how much you can borrow, you can try our Mortgage Calculator to assess your affordability.
- Choose the Right Lender
Not all lenders are the same. By selecting a credit union such as MHFCU, you are guaranteed high quality services, reasonable rates and most importantly, success.
Questions to Ask Your Lender:
- What are your interest rates?
- Whether there are prepayment penalties or not?
- Which types of loans do you provide?
- Submit Your Application
After you have prepared your documents, fill the pre-approval application. This process includes:
- A hard credit inquiry.
- Cross-checking of the financial statements.
- Evaluation of your chances.
At MHFCU for instance, we try to make this process as fast and efficient as possible and in some cases, we may make our pre-approval decision within several days.
- Get Your Pre-Approval Letter
If approved, you’ll receive a pre-approval letter outlining:
- Your maximum loan amount.
- Estimated interest rate.
- Loan terms and conditions.
Tip:
Have this letter close when showing properties or making an offer. Many sellers tend to give more attention to pre-approval buyers than those who are not pre-approved.
Tips for Maintaining Pre-Approval
- Avoid Major Financial Changes:
Don’t take on new debt or make large purchases before closing, as this could impact your credit score or DTI.
- Keep Documents Updated:
If your pre-approval lasts several months, be prepared to submit updated financial information.
- Communicate with Your Lender:
Inform MHFCU about any significant life changes, such as a job switch or unexpected expenses.
Common Pre-Approval FAQs
Q: How long does pre-approval last?
Most pre-approvals are valid for 60-90 days. If you haven’t found a home within that period, you may need to renew your pre-approval.
Q: Can pre-approval guarantee loan approval?
Pre-approval is not a guarantee but a strong indicator of your eligibility. Final approval depends on the home appraisal, title verification, and underwriting process.
Q: Does pre-approval affect my credit score?
Yes, pre-approval involves a hard credit inquiry, which may temporarily
Bottom Line
Mortgage pre-approval is a vital step in the home-buying process, providing clarity, confidence, and credibility. By following these steps and partnering with a trusted lender like Middlesex Healthcare FCU, you can simplify the process and move closer to your dream home.
Ready to get started? Contact us today or apply online to begin your pre-approval process with Middlesex Healthcare FCU!
