Getting pre-approved is a critical step in the home-buying process. If you want to have a fighting chance in the competitive market, you must get pre-approved before you start talking to sellers.
A letter of pre-approval from your lender lets sellers know that you are a qualified buyer. They are more likely to feel like you will waste their time.
It’s important to note that pre-approval for a mortgage is not the same as pre-qualification.
Pre-qualification can help you determine a budget based on self-reported figures. If you get a letter of pre-approval, your lender will take a close look at your finances to determine how much they can approve you for.
The pre-approval process is similar to the official mortgage application process, and you’ll have to provide the same documentation.
However, being pre-approved is not a 100% guarantee that you will be approved for the mortgage.
Conventional Loans vs. Government Loans: Which Type is Right for You?
Mortgages come in all shapes and sizes to make homeownership possible for people of varying financial statuses.
The most common type of mortgage loan is a conventional loan. These loans come with strict qualification requirements and require a 3% minimum down payment. Borrowers will need to have a credit score of at least 620, and a debt-to-income ratio of less than 50%.
Buyers who put down less than 20% must purchase private mortgage insurance.
Government-backed loans, like FHA and VA loans, are available to help low-income individuals and veterans become first-time homeowners.
The Federal Housing Agency loan is a first-time homebuyer loan that requires a credit score of at least 580 and a minimum 3.5% down payment.
This loan can help you become a homeowner if you are struggling financially, but it’s smart to refinance to a low rates conventional mortgage if your financial situation improves in the future.
FHA loans come with higher rates, and you’ll have to pay mortgage insurance premiums. With VA loans, you have to pay a funding fee, but there is no down payment requirement for first time home buyers.
These home buying programs can be beneficial, but you must carefully consider how fees and other costs stack up against the cost of a conventional mortgage.
