Why get pre-approved for an FHA mortgage? This is a question some first-time home buyers ask, and the answers can make a big difference in how you approach your home loan.
FHA Home Loan Pre-Approval Does Not Commit You To A Mortgage
When you fill out the forms to be pre-approved for a home loan, you are not committing to the transaction in the sense that you would be financially obligated to buy. The borrower is not legally committed to a purchase when getting pre-approved.
Home loan pre-approval actually works to help you be taken seriously as a buyer when you do find a home you’re ready to commit to.
The buyer takes a pre-approved borrower more seriously and you may find that a pre-approval letter (depending on the housing market) is really the only thing that will let you make a serious offer.
That is different for those paying cash for a home, but if you are applying for a mortgage loan, pre-approval is an important factor. Some sources claim that more than 40% of all house hunters start looking for a home without getting pre-approved.
That means that if you come to the seller as a pre-approved borrower, you have a potential advantage over 40% of those competing with you for the same property. If getting pre-approved for an FHA mortgage makes the difference between buying the home or missing out to someone else, it’s a very good idea to explore.
FHA Home Loan Pre-Approval Helps You Understand How Much Loan You Can Afford
Do you know how much the homes cost in your chosen housing market? And by comparison, how much loan you can afford to apply for? House hunting without knowing your price range can be a problem especially if you don’t know how taxes, insurance, and other factors will affect your monthly mortgage payments.
Home loan pre-approval takes into account the estimated price of the home, interest rates (in general), the amount of the down payment, and other factors. You want to know the average price range you can afford (in the lender’s eyes) and start your house hunting journey with those numbers in mind.
What It Takes To Pre-Qualify For A Home Loan
To pre-qualify you will need income details, a list of your employers (the lender is required to verify two years of income though not necessarily with the same company), and you’ll want to come to the pre-approval process with consistent or rising income over the last two years.
You should not try to pre-qualify for a mortgage loan if you have a bankruptcy in your credit history in the last two years (longer than two years old may be acceptable depending on circumstances) and the mortgage payment you want to make doesn’t take up more than 30% of your income. That percentage may vary depending on the lender so it’s best to ask what that lender’s standards are.
Before you prequalify for a mortgage, try using an online mortgage calculator to determine what your estimated payments might be and get a good price range for the homes you want to consider when house hunting.