If you are going to buy a home, mortgage pre-approval should happen early in the process.
You will need to provide financial credentials to a mortgage lender, including details about your credit and income. The information you provide will be reviewed and you should be pre-approved for a loan up to a set amount, assuming you qualify.
But what happens after you are pre-approved? Here's what you can expect.
You'll be able to use your pre-approval letter to go see homes
When you're looking for houses, some sellers will require proof that you have been pre-approved for a loan before they will allow you to visit their home for a showing. A lender will give you a pre-approval letter after you go through the process to enable you to visit any house you may be interested in taking a look at.
You can make an offer and provide proof of pre-approval
When you have found a home you are interested in, you will need to submit an offer. Most sellers require proof of pre-approval before they will accept it. That's because they don't want to take their home off the market for someone who doesn't have the funds to buy it. You'll include a copy of your pre-approval letter with your submitted offer.
When your offer is accepted, you'll let your mortgage lender know and an appraisal will be scheduled
After you have an offer accepted, you'll want to reach out to your mortgage lender ASAP. You'll need to go through the process of getting your home appraised. Lenders generally require an appraisal to ensure the home is valued highly enough to serve as collateral for the loan.
For example, say you were buying a home for $400,000 with a 10% down payment of $40,000. Lenders want to make sure the home is actually valued at $400,000 because they are generally only willing to make a loan up to a certain percentage of the home's value (such as 90% or 97%).
If the house appraises for less than you are offering -- say, for $350,000 -- you would have to increase your down payment in order to remain at the 90% loan-to-value ratio. Or you would need to ask the sellers to reduce their price based on the low appraisal, which doesn't always work.
You'll usually also go through some other steps during this stage. For example, you may want to have a home inspection and your lender may require a survey to make sure there aren't any issues with the land boundaries.
Your loan will go to underwriting
If your appraisal and other pre-conditions of the loan, like a survey, all go well, then your loan will move forward to underwriting. Underwriters assess risk, so they will look at all the details of your home loan and make sure all is well.
Ideally, you will not have made any damaging financial moves between pre-approval and underwriting, like opening a bunch of new credit cards or taking on more debt of any kind. And you hopefully haven't changed jobs either, as that can make a lender nervous.
If everything looks good both with your financial credentials and the home, you'll get final approval.
You can close on your loan and home if all goes well
Finally, your closing will be scheduled. You'll pay all your closing costs, such as your mortgage origination fee and transfer fees, and your lender will release the funds to the sellers. You'll become the official new owner and can begin the process of enjoying your new home -- and paying your new mortgage loan off.
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