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An Introduction to Mortgage Pre Approval

The first step while taking a loan is the loan pre-approval. In this process, the lender checks the credit as well as verifies the income of the borrower, followed by an assurance that the mortgage will be granted to a certain amount. The borrower then receives a pre-approval letter.

The benefit of getting your loan pre-approved is you can show your home seller that you are more likely to buy the property. However, a pre-approval letter is not a guarantee that your loan will be granted. The borrower can also buy property for less than the pre-approved amount.

mortgages
mortgages

What Is a Pre-Approved Letter?

The buyers, as well as sellers, have always paid a lot of attention towards the loan pre-approved letters. The buyers usually prefer these pre-approved letters before they start searching for a home, and sellers require them before they accept the offer.

The real estate agents need these approval letters in order to bring offers to sellers as well as start work with the buyers. The home loan pre-approval letters are usually issued by the banks or the loan brokers, which are thereafter given to the homebuyer to state that the borrower qualifies for the loan.

Points To Remember While Getting Your Loan Pre Approval

The first and foremost things are to talk to different lenders in order to find the most suited home mortgage packages that fulfill your requirements. One should always consult the lenders before searching for a house. By doing this, you will get a clear picture of the amount you would receive from lenders, as well the different houses that fall within your range.

Secondly, borrowers should make a financial biography, as required by the lenders in general. In the financial biography, you must include certain things such as the bank statements for the past few months, federal tax returns for the previous two years as well as the investment income proof.

It is advisable to work with only reputable lenders. These days, a majority of the home sellers pays a lot of attention to the lender, and they will certainly prefer someone who is financially sound and a reputed lender.

One should always select banks or brokerages in the locality. Another major factor when you get a pre-approved letter for the loan is time. Most of the pre-approval letters for loans and valid documents have an expiry date.

Easy Tips to Get a Preapproved Mortgage

Getting a mortgage was an easy task a few decades ago, but now, to buy a home, you need to obtain a letter of preapproval. The letter means the lender would verify that the borrower is pre-approved for a loan of a certain amount. These letters are prepared before a borrower selects the home.

The preapproved loans, remove the uncertainty in the process of home buying, to some extent. In the present housing market, the real estate agents, as well as sellers do not like to work with the buyers, unless they have this letter.

With this letter, the buyer has a clear idea of how much money he can borrow. The letter tells the seller and the agent that the customer is capable of purchasing the property.

The major benefit of getting a preapproval to your loan is the agents consider such buyers as more valuable and serious, as they have taken the necessary proactive steps in order to secure the preapproval. At the time of making the offer, the preapproved buyer can negotiate in a better way. However, there are certain rules of the loan preapproval.

Find the Deal That Suits Your Requirements

To grab the best package consult a few mortgage lenders. Generally, the loan packages are similar and there is not much difference in the pricing. The lenders can tell the amount of money you can borrow and the property within your range.

In order to be preapproved, the lender would review and verify the income of the borrower, his credits and assets. This is done to ensure that he can make the monthly payments on time. The lender should tell the buyer precisely the necessary documents that must be included.

Always Deal With a Reputable Lender

Sellers are mostly very particular about the lender of the buyer. It is always better to work with a reputable and financially sound lender, to avoid instances where the lender fails to deliver the loan. Always consult the local realtor before finalizing the lender.

The pre-approved letters, which are verified by the lenders, have expiry dates. Usually, they are valid for a period of 90 days, and if you feel you will not be able to finalize your deal within the stipulated time, get your preapproval letter re-validated.

In case your financial position has changed because of your job, credit, status, assets or income, it is better to notify your lender, so he can adjust the preapproval.

How Much Deposit Do You Need For A Mortgage?

Mortgage deposit is a certain amount of money the mortgage lenders want you to pay before your application is accepted. The amount is usually a percentage of the price of the property that you purchase. The percentage may be varied but in general, you would pay 5 to 20% of the properties price if you intend to buy the property.

It is important that you have genuine savings for at least three years to reduce the amount you would pay on the mortgage each month. Saving for a mortgage deposit here are ways you can save up for the mortgage deposit if you don’t often purchase coffee and tea during the week you should do this occasionally.

Another idea is to look for the second job in order to fund the deposit. You can do this by doing jobs for relatives and neighbors were working as a part-time job at night or on weekends.

How Much Can I Get A Mortgage For My Property Purchase?

When talking about how much house deposit you need to save if you are first time buyer who is looking into buying property. When you are on the way to find a property, either you want to buy a home or an investment property, it is a very important thing you need to know because when you’re saving for your deposit you need to know exactly what you saving for and how much you going to needs.

Each lender has different requirement so it is important to know what’s required before you can begin investing the largest hurdle in order to save it is you first need to know exactly how much you need to save.

For standard residential property, you can begin with 5% of the purchase price of the property. However, if you deposit is below the 20% threshold so the 20% of the property value is required to pay lender’s mortgage insurance.

Can you buy a house without any deposit?

Deposits may have changed significantly from time to time. You used to be able to have a 100% loan without the need for you to come out any deposit. But now time is change and when economic condition is not good, you will request to come out with a certain amount of deposit in order to buy your house.

What if you don’t have any savings?

Unfortunately, today it is hard for you to find mortgage brokers or lenders who offer no deposit home loans at all.

However, with help from your parents or relatives, or a little creativity, you may still be able to borrow over 100% of the property value.

Example:
Joe is young and ready to get into the property market. But there is one problem: He hasn’t saved up a deposit and the banks tell her that He won’t be able to get a loan. So what can Joe do? Well, He could save up a deposit, but he wants to buy a house as soon as possible. Luckily for Joe, there are a number of options he can choose from.

The first option is with a guarantor loan. Using a guarantor is by far the most common way for first home buyers to borrow the full purchase price. If Joe’s parents own property and they are willing to guarantee her loan, then Joe can borrow up to 100% or possibly even more.

Banks will also lend enough to cover stamp duty and other costs involved in the purchase. He doesn’t need any savings of his own, He can get a great interest rate, and He doesn’t even need to pay any lender’s mortgage insurance!

But what if Joe’s parents don’t want to be the guarantor on Joe’s loan? That’s fine, his parents may be able to gift him a deposit. If they give him enough to reduce the loan down to 90% of the property’s purchase price, then Joe may be able to qualify for a home loan with no proven savings record.

However, if Joe is renting then he may be able to borrow up to 95% of the purchase price without proving a savings history. Let’s said the purchase price for the property is $150,000 if Joe is having a 90% loan, then he has to come out with 10% of deposit which is $15,000 to secure the home.

Another great idea is to check whether you are eligible for a grant. Government grants such as the First Home Owners Grant vary between states and they can be very high for new properties.

By getting a government grant, you may be able to cover the deposit required for the loan. However, be careful when using a grant or a gift from your parents as a deposit. Not every lender will approve a home loan if you didn’t save up the deposit yourself.

So where’s Joe now? Well, Joe’s parents were happy to go guarantor for his home loan. Joe got the perfect little house by the water and is thoroughly enjoying his new home.

Deposit on a Second Home?

If you want to buy a second home, things that you need to find out are:

  1. The deposit amount you need since different mortgage brokers may require a different amount of deposit.
  2. Either you want to choose for fixed interest rates or a variable one.
  3. Other fees charges with the mortgage loan that you apply for.

Once you do your survey and found few choices that meet your requirements, you will then look into the interest rates. Generally, the deposit that you need to pay for a second home tends to be higher compared to the deposit of your first home. Said if you just pay 5% of deposit for your first home, then you may need to come out at least 10% to 20% for your second home.

Is it Better to Pay Cash for a Home or Get a Mortgage?

Some people feel that if they had the cash things would be a lot easier when it comes to buying a house. However, there are many people who feel that this is just not a very good idea. Of course, many people feel that it is always best to own something than to be in debt to someone.

Of course, there are a lot of benefits to paying cash for your new home, and one of them is that fact that you will not have to worry about the mortgage payment each and every month. Especially if your taxes suddenly begin to rise and you find that some of your money is suddenly all tied up.

Another benefit to paying with cash is that the entire home purchase process is a lot easier and in most cases a lot quicker. You will also be saving yourself a lot of money when it comes to the closing costs.

The reason why the closing costs would be cheaper is that you would not have to worry about paying a lot of the administrative fees, due to the fact that there is less paperwork.

You also would not have to worry about what your credit score is. If you are paying cash for a home there is no reason for anyone to take a look at your credit.

Getting Mortgage

Some people fee that by getting a mortgage it gives you more options if you find yourself in sudden need of money. If you don’t have a mortgage then you may be put into the situation of selling your home or using your property as collateral to pay for sudden expenses.

Depending on how long you have loaned the house you may find that it is difficult to secure a loan using your home. Of course, you definitely don’t get as many tax benefits by paying cash for your home. Of course, the main reason for buying housing other than to live in it is to make money.

Some people consider it a great investment to pay cash for a house. However, it is always possible that you will end up losing money if the value on your house does not go up.

However if you are just looking for a comfortable place for you and your family to live and you can afford to pay cash for your home, then why not. Just make sure that you do your research on this topic before you make a decision.

After the research that I have done, I have found that it is definitely better to pay cash if you can afford to do so. Of course, you don’t want to put every last dime you have into buying a house. So make sure that you still have enough money left over just in case of an emergency.

Mortgages Today

Name one of the biggest investments you can make in your entire life?

It may take some thought, as buying a car or paying for student loans will come to mind. Yet, in actuality, buying a home and taking out a mortgage will be the biggest expense you will ever make.

Nobody expects you have to the full sales price for a home tucked underneath the mattress in your apartment. So, to make the home buying a possibility for an average person, banks will grant loans — called mortgages — to qualified individuals.

The Ins and Outs Of Mortgages

Understanding a mortgage is easier than trying to get one or pay for it during the entire term. Basically, you will work with a mortgage broker who will act as your liaison with the lender. In this arrangement, you will often be called the borrower on financial documents, since you are the person borrowing the loan from the lender.

The lender, who is a financial institution such as a bank or private lender, will evaluate your income, credit history, and other factors to determine if you will make repayments for the loan at the specified interest rate.

If you have a good credit score, are making your payments in full and on time, and you have a steady income, you will have a better chance at getting a mortgage at a low interest rate.

Types Of Mortgages

A mortgage loan consists of several different payments. Structured into the loan itself, you will need to make repayments on the loan’s principal, which is the original amount that you borrow, the interest rate the lender charges you for borrowing the principal, property taxes, and homeowner’s insurance.

How you will make repayments will be based on what type of mortgage repayment option that you choose:

  • Fixed-Rate Mortgage: Fixed-rate mortgages allow you to choose how long you want to make payments, called a loan term. Loans usually consist of 15-year, 20-year, and 30-year terms. During the length of the loan term, your interest rate is fixed. So if the market changes as interest rates rise or fall, your interest will stay the same.
  • Adjustable Rate Mortgage: An adjustable rate mortgage is where you will normally have a fixed rate for a certain length of time, such as 5-years to 7-years, and then the interest rate will adjust annually based on market conditions.

Get Pre-Approved Before Looking For Homes

To help with the home buying process, it is a smart idea to get pre-approval from the lender before looking for a home. Getting pre-approved allows you to understand how much the lender is willing to give you so you will know how much money you need to raise for the down payment of the home.

Pre-approval can also help during negotiations with the seller since your sales bid will look more attractive than other bids from buyers because you already have lender-backing and can close the deal faster.

Yet you should be aware that if your financial situation changes in any way, you could lose your pre-approval from the lender or have the interest rate change to reflect your current financial status.

For these reasons, you should refrain from taking out more credit or making big purchases that can change your credit history until after you purchase a home.

You should also continue to make all your other payments on time and in the full amount. Your lender will recheck all your financial information and income before the closing to determine if you are still a good credit risk.

Using the Internet to Find the Best Mortgage Loans

You can use the internet to help you find the best home loans. This is a great tool that you can have access to around the clock. You may not understand all of the types of home loans out there. As you do your exploring you will be able to find different ones you may qualify for. Perhaps you are a first-time buyer or you don’t have good credit. You can specifically find loans that will work for your types of needs.

Compare Interest Rate Online

You can compare rates of interest and other fees before you apply with any lender for a home loan. By comparing such amounts you can get the very best deal. It makes sense that you want to pay the lowest possible amount of fees and interest that you can for your loan. That means that the more money you earn will stay in your own pocket. If you have questions, you can contact various lenders through email, call them, or use online chat.

You can compare lenders too in terms of their rating with the BBB and with consumers. The more you read reviews the more you can see who the best lender to work with is. In reality, a great home loan really comes down to who you turn to for it. Some loans are a nightmare from the start. Others are very smooth due to the ethical and professional behaviors of the lender.

You can use the internet to also apply for a loan online if you like. Many people do this to be able to have the convenience of working on their loan on their own terms. They also do it so that they don’t feel anxiety by walking into a fancy bank and having to deal with people that they aren’t comfortable around to ask for a loan.

Compare Mortgage Lenders and Available Options

Some sites allow you to compare lenders and their options side by side. This can really be a great tool if you don’t really know yet what you want. Being able to see the pros and cons of any type of home loan is really important. You can also find out just how much of a home you can afford with your current budget.

There are plenty of tools online too that help you to calculate things. You can use those tools for free to find out how much your payment would be for a certain dollar amount and at a certain amount of interest. You can also use those tools to help you identify how much you will save by paying just a bit extra every month on your home loan.

The internet can be a great resource to you when it comes to finding the best home loans. Check out what is offered to get information and to debunk various myths. Such information will make you more confident when you are ready to apply for your home loan with the right lender. Don’t be in a rush to work with just anyone.

Warren Paine

Warren is the senior mortgage loan officer who has worked in mortgages and loan industry since 1995. He study in Harvard and major in Finance with a Bsc. Honor Degree. He possesses a Paralegal Certificate as well.

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