Wondering how to get a property that you are dreaming of? Sometimes, it is hard to purchase a house especially if the house is very costly. And what if the house is too expensive for your budget? What should you do? Do you have to just let go of it and look for a house that will fit in to your budget? These questions would really come on your mind if your budget is tight. To be honest, sellers won’t really drop their price just because you don’t have the money. They might look for a potential buyer if you can’t afford their price. There is a solution though to your problem. A very helpful one. The term is what you called pre-approval.
What is pre-approval? In layman’s term pre-approval is an “evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount that the lender would be willing to lend”, according to Investopedia. The pre-approval process involves a thorough look into the income and expenses of the borrower, including a look at the borrower’s credit report and score.
How do you get pre-approved? Though not a requirement, I suggest you do a pre-qualification. This is for you to have an idea how much bank will loan you. In that way, you can shop within your price range. This is the quick and easy way to find out. Usually, banks and credit unions will do this over the phone. The process would usually take a few minutes.
After you have your pre-qualification, you can get your pre-approval from your lender. This usually requires an appointment. In this step, the lending institution gathers all the information it requires to offer you a loan, and your credit report will be checked. You need to bring a copy of your most recent bank statements, your most recent W-2(or entire tax return if you are self-employed), proof of IRAs, any stocks or mutual funds, driver’s license, most recent pay slip from your job and an application fee depending on the lender. When the is done with their investigation, and they are happy with what they see, then they will provide you their terms, which includes the interest rate, loan type and closing costs. A document will be given which is called GFE or Good Faith Estimate. It is better to compare terms among lenders once you have GFE. Don’t accept the first offer you get. Choose the a lender which has the best offer. You may also negotiate for a good interest rate, reduced closing costs, or lender-paid private mortgage insurance. Make the lenders compete with each other.
One thing to remember is that pre-approval does not mean the bank guarantees your loan. It only means you are approved to get a loan. Commitment to the loan usually comes after the bank has had the house in question appraised to make sure the price you are paying is not higher that the home’s market value. But in general, you are pre-approved, most likely it will be approved.
So, don’t lose hope! If you can’t pay the property in full amount, it is best to get a pre-approval from your lender instead.