You’ll learn your maximum loan amount, which helps you shop within your budget
I’ve written a comprehensive article that explains the pre-approval process in detail. So I’m not going to repeat it all here. Here’s the nutshell version.
You can apply for a mortgage by getting pre-approved first. I strongly recommend this strategy. This is when the lender reviews your financial situation to determine how much of a loan they’re willing to lend you. In most cases, this is the first time you actually fill out the mortgage application.
You’ll get two useful items from this process. The first is a number, and the second is a document. You’ll also get a pre-approval letter, which helps you when making an offer on a house. The sellers will take your offer seriously if you’ve been pre-approved already.
Let’s recap some of step we’ve covered thus far. You’ve decided which type of mortgage loan you want to use. You’ve been pre-approved by a lender. Now you know how much of a loan you can get. So you’re ready to start house hunting!
Remember, you can’t get your final loan approval until you’ve found a home and made an offer. So the house-hunting process technically falls within the scope of our How to Apply for a Mortgage tutorial.
Once you find a home that (A) meets your basic needs and (B) falls within your budget, you’re ready to make an offer. This might involve some negotiating on your part. When the seller finally accepts your offer, you can proceed with step #8 below.
In order to approve the loan, the lender will need a copy of the purchase agreement. They want to know how much you’ve agreed to pay for the house. Why is this so important to the lender? Because they need to ensure the house is worth the amount you’ve agreed to pay for it. (more…)