If you are planning on buying your first home, you’ll almost certainly need a mortgage. Also known as a homeowner loan, a mortgage refers to borrowing money against the value of your home so that you can purchase it.
When the market is particularly competitive, it can be very helpful to arrange to get pre-approved for a mortgage. Pre-approval will prove to sellers that you have put the effort in to get your homeowner's loan approved and that you have a guaranteed source of funds to proceed with the purchase as quickly as necessary – unlike other people who may not have even discovered if they are eligible for a loan. Pre-approval could help sellers to consider your offer more seriously than others.
Pre-approval for a mortgage is typically based on three different things. These are:
How much can you afford to borrow based on your income and other expenses? Do you have a stable job and therefore income, or are you self-employed with a fluctuating wage? One of the main things that your mortgage provider will be concerned with will be how much you can actually afford to repay every month. There is always a degree of risk involved with a homeowner loan, so it helps to ensure that you can comfortably afford your repayments. Once you can prove this, your lender is more likely to approve the mortgage.
Do you have at least a 5-10% down payment? The greater the deposit you can offer, the lower risk your purchase is considered to be, and this can affect both getting approved for a mortgage and the interest rate you will pay.
Have you borrowed money in the past? Have you paid it back on time? If you have had any credit issues in the past, this could affect the approval process and the interest rate you will pay. Many people choose to spend a little time working on their credit rating before even thinking about applying for a mortgage. This could involve paying off your credit cards, making sure that you don’t have any outstanding debt, and making all repayments on time, every time. The better your credit history is, generally the better the deal you will be offered on your mortgage.
Some of the things that you will need to get in place will include:
Your proof of income
Verification of your employment/self-employment status
Proof of any assets that you hold
Your credit history
Your lender will be able to advise you exactly what paperwork you will need as part of the pre-approval process, and answer any questions that you may have.
Pre-approval is very valuable at the stage of buying a home in which you're just looking and bidding for properties. However, once your find your dream home, your lender will need to make sure that the property checks out too. They will look at things like:
The appraisal value of your home, to ensure that you aren’t paying more for the home than it is actually worth
The title of the property, to confirm who owns it and ensure that there aren’t any liens or claims against it that haven’t been disclosed
The condition of the property. This is because some mortgages require that the property meets certain standards. For example, if you are purchasing a home with an FHA loan, missing roof tiles, cracked windows, or rot could prevent the loan from closing
For more information on pre-approval for a mortgage, or to speak to our experienced team, please don’t hesitate to get in touch with our team at Collins Coastal in San Diego, California by calling 858.252.0200.