A mortgage is necessary if you don’t have a ton of money to buy a house, and obtaining a mortgage preapproval is the first step in obtaining a home loan. A mortgage preapproval provides you and the seller with information about your affordability and an estimate of your monthly and closing costs. It’s critical to comprehend the process of getting preapproved for a mortgage in order to prepare yourself for potential roadblocks and know what to anticipate during the process.
So you’re in the market for a new home and you’ve been pre-approved for a mortgage. Congratulations! But now you’re wondering, do you have to take the exact loan amount you’re pre-approved for?
The short answer is no you don’t have to take the exact loan amount you’re pre-approved for. Your pre-approval is simply a statement from a lender that they are willing to lend you up to a certain amount based on your financial situation. It’s not a binding contract.
This means you have some flexibility in how much you actually borrow. You can take out less than the pre-approved amount, or even more if you can afford it and the lender is willing to approve it.
Here are some things to consider when deciding how much to borrow:
- The down payment: The amount of your down payment will affect how much you need to borrow. A larger down payment will mean a smaller loan amount, and vice versa.
- Your monthly payments: Your monthly mortgage payments will be based on the loan amount, interest rate, and loan term. You’ll want to make sure you can afford the monthly payments before you take out the loan.
- Your financial goals: Do you have other financial goals, such as saving for retirement or college? You’ll need to factor these goals into your decision of how much to borrow.
Here are some specific examples of how you might use your pre-approval:
- You find a house that’s less expensive than the amount you’re pre-approved for. In this case, you can simply take out a loan for the amount of the purchase price.
- You find a house that’s more expensive than the amount you’re pre-approved for. You have a few options in this case. You could try to get pre-approved for a higher loan amount, or you could make a larger down payment. You could also look for a less expensive house.
- You want to make a larger down payment than you originally planned. This is a great way to save money on interest over the life of the loan.
No matter how much you decide to borrow, it’s important to shop around for the best mortgage rate. You can compare rates from different lenders online or through a mortgage broker.
Here are some additional things to keep in mind:
- Your pre-approval is based on your current financial situation. If your financial situation changes, your pre-approval may no longer be valid.
- Your pre-approval is not a guarantee that you will be approved for a loan. The lender will still need to verify your information and approve your loan application.
- You should always read the loan agreement carefully before you sign it.
Taking out a mortgage is a big decision, so it’s important to do your research and make sure you’re comfortable with the terms of the loan.
Here are some additional resources that you may find helpful:
- Consumer Financial Protection Bureau: https://www.consumerfinance.gov/owning-a-home/
- Federal Housing Administration: https://www.hud.gov/topics/homeownership
- National Association of Realtors: https://www.nar.realtor/
Mortgage preapproval vs. final loan approval
Obtaining a mortgage preapproval is similar to reaching second base on a baseball field thanks to a hit. However, in order to reach home base, or final loan approval, you will require assistance from another party. With a final loan approval:
- A purchase contract containing information about the house you’re purchasing will be provided.
- Typically, a home inspection is performed to ensure that all of the house’s components are in good operating order.
- To confirm the home’s value, your lender employs a home appraiser.
- To ensure that your title is free of liens or problems with previous owners, your lender orders a title report.
- Your loan application is completely vetted for accuracy
- If everything above checks out, your loan is cleared for closing.
The difference between mortgage preapproval and prequalification
Mortgage preapproval and mortgage prequalification may be used interchangeably, but there are important differences between the two.
- Prequalification for a mortgage is contingent upon a casual discussion about your income, monthly debt payments, credit scores, and available funds for closing costs and a down payment. The lender depends on your statements, without supporting financial records and, in certain situations, without obtaining a credit report.
- In order to be preapproved for a mortgage, all of the information you submitted on your loan application must be thoroughly examined and supported by records such as bank statements, W-2s, and paystubs. In order to assess how you have handled your credit over time, the lender also obtains a credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion.
Preapproval vs. prequalification
A mortgage preapproval is usually for consumers committed to buying a home. A prequalification is for homeownership tire-kickers who want a rough idea of how much they qualify for, but aren’t quite ready to start their homebuying search.
Get PreApproved for a Home Loan – 2024 Tips & Tricks
FAQ
Does pre-approval include deposit?
What does pre-approval include?
Do you include down payment in loan amount?
How do lenders calculate pre-approval?
What is the difference between a pre-approval and a mortgage approval?
Remember that pre-approval is a statement that you are considered generally qualified to pay back a mortgage, whereas the actual mortgage approval is on a specific purchase. The lender may believe that you are paying too much or may have uncovered liabilities that they did not find in the pre-approval.
Why should I get a preapproved mortgage?
Getting preapproved means it’s unlikely you’ll fail to get financing, and it may also help you pay less in mortgage interest rates. There are several important steps in the preapproval process, such as shopping around for lenders and gathering financial documents.
Do you need a mortgage pre-approval?
Mortgage pre-approvals are available for free through most mortgage websites with no obligation to proceed. Many home buyers get their mortgage from a different mortgage company that pre-approved them. So, don’t overthink this step. The critical part of getting your pre-approval is that you get it. Without a pre-approval, you cannot buy a home. 3.
Can I get a mortgage preapproval online?
Most mortgage lenders offer an online mortgage preapproval process, but there are some steps you should take ahead of time to get the most accurate approval possible. Leaving out or providing incorrect information could cause delays later in the mortgage process, and in some cases, result in a loan denial.