If you’ve never owned a home, you may think the home loan process is intimidating. In order to make home loans more accessible to borrowers, lenders provide services for you to take advantage of. One of these services is a pre-approval.
What is a Pre-Approval?
A mortgage pre-approval occurs when a lender agrees to lend you a specified amount of money before you have found a home. To apply for a mortgage, you will first fill out an application. A complete review of your credit history is performed and the information you’ve provided is validated. Based on that information, the loan can then be pre-approved.
When you apply for your mortgage, a pre-approval is issued subject to you finding the perfect home. You can use the pre-approval letter you’ll receive to assure Real Estate Brokers and sellers that you are a qualified buyer. Having a pre-approval can also give you an edge, as it may give more weight to any offer to purchase that you make, and you are able to move more quickly. Also, sellers may look more favorably on an offer that is not contingent on loan approval, especially if you are in a competitive situation in which multiple would-be buyers are making offers.
What Steps do I Take to get Pre-Approved?
Fill out a residential mortgage application with a target loan amount and sales price with your lender. These amounts may change as you wade into the property market, but it’s important to establish a starting point. Your application is subsequently reviewed, in addition to your credit history. Depending on the type of mortgage request, your income and down payment sources may need to be verified. This entire application process typically takes 7-14 days. Some financial institutions offer online preapproval applications that can be completed in minutes.
When you find the perfect home, simply complete your application. Once approved, you’ll have an opportunity to pay your application deposit and lock your rate and fees while your request is processed.
Important Items to Consider
Please keep in mind that although a pre-approval is a good indication you’ll receive a loan of the agreed amount, it is not guaranteed. The purpose of the pre-approval is for the lender to express a desire to fund a mortgage based on the applicant(s) credit and income. If issues relating to the property arise, it might cause the lender to decline to participate in a mortgage. Examples of this include but are not limited to: A home with a purchase price not supported by a market appraisal, one with structural damage, one with open building permits or one having a feature which may limit the marketability of the property—such as biological, chemical or environmental hazards.
Another potential hurdle regarding mortgage pre-approvals is a fluctuation in interest rates, and/or the buyer’s financial picture since the time of initial mortgage approval decision. If interest rates move up sharply, or the buyer’s income or down payment suffer an unexpected decline, the basis for the mortgage pre-approval will have changed and therefore the lender may choose to decline to participate in a mortgage.
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About UW Credit Union
This information is provided to you courtesy of UW Credit Union, based in Madison, WI. UW Credit Union is a leading provider of home loans in Dane County and throughout Wisconsin.
For more information about the home loan process, please contact a UW Credit Union Home Loan Specialist at 800.533.6773, ext. 2810, or vist UWCU.org.