Navigating the muddy waters of mortgages alone can be confusing. There are so many new terms to learn, forms to complete, and questions left unanswered. One of those questions: what does it mean to be pre-approved for a mortgage? Brittany Murray, a North Country Savings Bank Loan Expert, was happy to answer that question and others. From pre-approval to the closing table, Brittany is an invaluable resource for local home buyers trying to solve the many mysteries of the mortgage process. When it comes to pre-approvals, she provided clear answers to the five biggest questions customers have.
The Five Big Questions of Pre-Approvals
1. What does it mean to be pre-approved for a mortgage?
"To be pre-approved for a mortgage means that you are able to buy the house of your dreams," said Brittany. "It means the bank has reviewed your application as well as your credit, assets, and income, and has determined you qualify for the amount of money you are requesting, pending a satisfactory appraisal of the property you intend to buy."
2. How do I get pre-approved?
"To get pre-approved, you will need to start by filling out an application. You can complete the application at home, on our website, or stop in to your local North Country Savings Bank and we will be happy to assist you," said Brittany. "Once your application is complete, you will need to provide verification documents such as current paystubs, last year's W-2s, bank statements, and anything else needed to determine your financial eligibility. Your application and documentation will then be submitted, along with the amount you are requesting and a copy of your current credit history and credit score. Then, we wait to see if you are approved!"
It is important to remember that your income plays a big part in what you are approved for. When determining your mortgage eligibility, lenders will calculate your debt-to-income ratio. A debt-to-income ratio is a calculation of your monthly payments, including the requested loan amount plus real estate taxes and homeowner's insurance, divided by your gross monthly income. The higher the debt ratio, the riskier it is for the bank to lend you money. In order to get pre-approved, your loan amount will need to be within the guidelines of what the bank determines you can reasonably pay back under your current financial circumstances.
3. Do I need pre-approval to get a mortgage?
"Yes, getting pre-approved is the first step toward securing a mortgage. All mortgages are considered pre-approved until an appraisal of the property is completed and confirms that the property meets the bank's criteria."
The appraisal process is an important step to be aware of. An appraisal is when a certified and licensed appraiser, chosen by the lending institution, inspects and evaluates the property you intend to purchase and gives the bank an estimated market value of the property, based on the house's physical condition and the recent selling price of comparable houses within the same market.
As you can see, a lot hinges on the appraisal report, and pre-approval does not guarantee your mortgage request will be awarded. Sometimes, the appraisal can make or break the deal. For example, if the property is appraised at a significantly lower value than the sales price your application may be denied. While that may be disappointing at the time, it could also save you from overpaying for your home.
4. What if I need more than I was pre-approved for?
"If you need to borrow more money for the home of your dreams, we can submit a request to change the loan amount, and try to get you pre-approved for a higher loan amount."
5. Once I've been pre-approved, what's the next step?
"Once you are pre-approved, your Loan Expert will go over a Loan Estimate with you," said Brittany. "A Loan Estimate is an estimation that shows what your potential closing costs could be, as well as a monthly payment and taxes and future interest rate adjustments. If you sign that form, thereby agreeing to the terms shown on the estimate, the bank will collect a small fee to cover the cost of a property appraisal."
If the appraisal is completed and the property is found to be of satisfactory condition and value, then you can move forward with purchasing your dream house!
Loan Experts Are Here to Help
Buying a house can seem like a daunting task at first, but it is well worth the effort when it means unlocking the front door to your new home. And, with the help of Loan Experts like Brittany at North Country Savings Bank, the process can be broken up into steps that are easy to understand and manage. Don't let financial vocab words like "pre-approval" stand between you and your future. Stop into your local North Country Savings Bank, pick up an application, and meet with a Loan Expert today!