🏡How To Get Pre-Approved For A Home Loan In Richmond, Va.

When you begin the home-buying process, the very first thing you should do – before hiring a realtor or going to open houses – is to ensure that you can, in fact, get a mortgage for your house. Many realtors will find it hard to help you without financing, and sellers often won’t entertain an offer without a pre-approved loan. This can be a confusing process to many home buyers, so let’s walk through some common questions about how to get pre-approved for a home loan in Richmond, Va.

❓❓Why should I get pre-qualified for a home loan?

If you are simply considering purchasing a house, but not serious yet, then you may want to begin by getting pre-qualified for a home loan. This is a simple process that you can do with your bank, sometimes even over the phone. Pre-qualification checks your credit, your reported income, and your debt-to-asset ratio based on information you provide and gives you a ballpark of how much you can borrow and approximate terms of a loan. It’s not a guarantee, but it will give you an idea of where you stand.

If you haven’t purchased a home in a long time, or if you’re in the market to buy your first home, getting pre-qualified may show you how to improve your likelihood of a higher loan amount or better terms. Pre-qualification looks at your FICO score and your history with installment loans, both of which you can significantly improve over the course of a year.

🤔Am I pre-qualified or pre-approved? What’s the difference?

Pre-approved and pre-qualified for a home loan both indicate the amount of money a lender is willing to lend you for a home purchase and the terms of the loan. These usually come in the form of a letter, which you’ll need when hiring your realtor.

A pre-qualification letter is essentially an enticement for you to apply for a home mortgage. It’s sent by lenders giving you an approximation of what you’ll be approved for based on a quick view of your credit score and reported income.

When you are pre-approved for a home loan, it means that the lender is willing to lend you the money, and gives you the terms of the loan (interest rate, loan period, etc). You won’t actually be given the loan until you’ve selected a home and you’re closing, but pre-approval indicates that you have financing available.

📝What does the pre-approval process look like?

Pre-approval for a loan is a more in-depth process and can take a few days up to a couple of weeks to complete. You (and/or a co-borrower, like your spouse) will complete a lengthy loan application, including information needed for your lender to thoroughly check your credit, income, and payment history. Think of it as a full physical of your financial health. While you report the information needed by the bank, this is more in-depth than a pre-qualification – you may not be eligible for as much on a pre-approved loan as you were for a pre-qualified loan, as your full credit and payment history are part of the decision process.

From this, the lender can tell you the specific mortgage amount for which you are approved. You’ll also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock in a specific rate. Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place. When you make an offer, it won’t be contingent on obtaining financing, which can save you valuable time.

💳My credit is shaky. What can I do to better my pre-approval options?

If the results from your pre-qualification raised some red flags for you, then you may want to take a step back from the home buying process and work on your credit history and debt-to-asset ratio a little more. First, check your credit report, and sign up for a credit reporting service that reviews your credit score every quarter. This gives you a tool to monitor your progress. If your score is on the low end, don’t panic. You may still be pre-approved and qualify for a loan, but you’ll pay a higher interest rate.

 

You can raise your credit score by making your payments on time and in full. Don’t open any new lines of credit, and don’t close inactive credit cards – your lenders will look at how long you’ve had credit, either with a credit card or another loan. If you do use credit cards, avoid maxing them out each month, even if you pay them off in full. A good rule of thumb is to use only about one-third of the credit you’re eligible for.

👍I’m ready! When should I get pre-approved for a home loan?

Pre-approval for a home loan is contingent on the lender’s underwriting department evaluating your full financial history, as well as your income verification. It can take several weeks, and you won’t be fully approved for your home loan until you’ve made an offer on a specific house and had it appraised by your lender – only then can they actually write the loan.

Getting pre-approved as early in the home buying process as you can is advice many savvy realtors will give you. It places you in the same category as a cash buyer and shows your realtor that you’re serious about buying. And should you find yourself in a bidding war for a particular house, having a pre-approved mortgage letter in your hand may edge you out over your competition.

📅How long will my pre-approval last?

A pre-approved mortgage is contingent on your financial situation remaining the same. Pro tip: Don’t make any major purchases with installment loans while you’re under a pre-approved loan (like a car) as this can negatively affect your loan during closing.

Pre-approval for a mortgage is generally valid for 60-90 days and can be updated by re-verification of some of the documents. The terms of a pre-approval vary from lender to lender, and also by state, so, you know, read your pre-approval letter completely. It should not affect your credit score if the lander is running your credit for the purposes of obtaining a mortgage.

💵How much home can I afford?

Your pre-approved home loan is a statement of how much your lender is willing to let you borrow for a home purchase. Don’t make the mistake of thinking that this is how much home you can afford. In fact, many first time home buyers, especially if they’re moving from an apartment into a house, find themselves “house poor” once they’ve moved in. There are several things to consider when determining how much home you can afford – here is a good mortgage calculator including your HOA dues, taxes, and homeowners insurance. The cost of heating and cooling a home larger than where you’re currently living, as well as added utilities that may be rolled into your rent, should be part of your equation, as well. Don’t forget to have money set aside for preventative maintenance and repairs, too.

While lenders will provide loans with various percentages of cash down on the purchase, in most cases putting down 20% is a smart move. The less you put down in cash on a property, the higher your monthly mortgage payment will be.

❔What is Private Mortgage Insurance, and how will this affect my pre-approval?

Applying for PMI may be part of your home loan pre-approval process, and is something to keep in mind when setting your budget. If you have less than 20 percent of the home’s value for a down payment, less-than-stellar credit, or if you are refinancing your existing home loan and have less than 20 percent equity, then lenders will require that you purchase Private Mortgage Insurance (PMI). If you are in one of these situations, your lender will typically advise you of this. Your monthly PMI payment needs to be factored into your monthly home payment, so consider this when determining how much home you can afford.

PMI protects the lender (your bank) in case you aren’t able to make your home payments. The PMI is an insurance policy; you make the payments each month, and the lender is the beneficiary of the policy. Some lenders will set your interest rate higher in lieu of requiring PMI, but that varies; if this is something you’re comfortable with, ask your mortgage broker about this option. Once you’ve accumulated at least 20 percent equity in your home (once your mortgage is less than 80 percent of your home’s value), you can cancel your PMI; if you opt for a higher interest rate, you may end up paying more on the loan, and there’s no guarantee you’ll be able to refinance your home at a lower rate in the future.

Getting pre-approved for a home loan is a big step, but an important one if you wish to be considered as a serious buyer. Your realtor will find it easier to find homes in your price range, and sellers will see you as a serious contender when it’s time to make an offer. Finally, once you’re pre-approved for a home loan, you’ll find that the closing process is streamlined, getting you in your new home sooner.Now that you know how to get pre-approved for a home loan in Richmond, Va., when you have your letter, give The Wilson Group a call – we can’t wait to work with you!