Most mortgage preapprovals are valid for 6 months. It makes sense to obtain the approval first before you have settled on a property. If you are keen on buying a house, it will probably take you 2 months to find one and 2-3 months to close the mortgage with bank. Getting preapproved will help you know what loan you qualify for, the expected down payment, what your loan installments will be, closing cost expectations, your credit score and any alternatives you have to raise your credit score.
Sort Out Credit Issues
Imagine spending weeks looking for a house, finding one but only to discover that your credit score or debt to income ratio disqualifies you from getting a loan of the required amount. It will be wasted effort as you might not be able to sort out the issue in time to close a mortgage for the property. If it has been a while since you checked your credit score, obtaining mortgage pre-approval will help bring out any credit headaches. That way, you can deal with the setback early as opposed to getting an unpleasant surprise when you have little time to resolve the problem.
Knowing you have an excellent credit score is one thing while understanding the intricacies of the mortgage loan is another. Prequalification allows you to dive into the details early in the process. Establish what financing options you have, down payments, interest rates, reserve cash requirements and more. You will be a seller’s dream buyer as you already understand what you want and the structure of your offer.
The down payment is another major reason to get pre-qualified in good time. In order to comply with tax regulations and anti money laundering rules, lenders follow stringent guidelines on the source of a customer’s money. Banks are required to document any extraordinarily large deposits to your account. The down payment is likely to be a larger amount than your payroll deposit or other regular source of income so starting to prepare early is a plus.
Ensure that the down payment comes from an acceptable and verifiable source. Such sources include payroll entries and sale of property (house, vehicle, furniture etc) as long as supporting documentation is available. Gifts are allowed depending on the type of mortgage. However, the source of gift deposits is limited to family members only.
Manage Other Expenditure
Buying a property is a costly undertaking. It helps to avoid incurring any large expenses during this time. However, it does not always have to be this way. You could be keen on replacing the furniture or buying a second car. The advantage with obtaining preapproval is you know how much headroom you will have left to either borrow or save for any other expenses once your mortgage payments are covered.
One of the golden rules of financial planning is start early. Buying a home is no exception especially if you are going to finance the purchase using a mortgage. That’s why the preapproval is so important.