Everything to Know About the Pre-Approval Process for Home Buying!
If you plan to buy a home in Champaign / Urbana, you’ve probably already heard about being pre-approved for a home mortgage. But do you understand the process? Here it is in a nutshell just in case.
What is Pre-Approval?
Simply put, to be pre-approved for a mortgage to buy a home in Champaign / Urbana, the lender will decide if you’re eligible for the loan and for how much, based on your credit.
Why Do I Need to Get Pre-Approved?
Getting pre-approved for a loan is really a good idea for several reasons. It lets you know how much money you need to complete the purchase. If you put down more money, your payments will be lower. You will also get a better idea of how much you can afford for the total price of the home.
Many people make the mistake of thinking that the loan product that a friend used will work the same for them. Even though that’s a possibility, it’s not safe to assume so. No two loans are alike, just as no two lives and circumstances are alike.
Loan products also have different costs, such as varying lender origination fees. Your loan officer can work with you to learn the costs of a loan and how the loan process works. This will give you a good idea of what costs to expect.
Knowing these things will make you more comfortable when deciding on a home to buy. It also shows sellers that you’re serious about making an offer, giving you an edge over buyers who haven’t been pre-approved.
Getting Pre-Approved is Easy
Pre-approval is an easy process, so there’s no reason not to do it. You just need to know how much money you make, assets, and debts.
What Does My Lender Need to Check During Pre-Approval?
Gathering all these documents can feel like busy work and is typically the hardest part for you.
If you want to have an idea of whether you’ll get pre-approved before choosing a lender, a good first step is finding out your debt-to-income ratio, or DTI. Your DTI ratio helps a lender understand how much of your monthly income goes to paying your debt and what you have left after those debts are paid. You can calculate the ratio by dividing monthly debt payments by gross monthly income.
The lower your debt-to-income ratio is, the better. A lower DTI will make you seem less risky to lenders.
Although each loan product is different, most lenders would prefer your debt-to-income ratio to be at 36% or lower.
Find out how much your home is worth in Champaign / Urbana now! Make sure to check out our property search feature to find the perfect home in Champaign / Urbana. And be sure to follow us on Facebook!
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