What is a preapproval and why do I need one?
A preapproval is a letter from a mortgage lender that is provided to a buyer for the purpose of identifying how big of a loan he or she will qualify for. It lays out the type of loan (conventional, FHA, VA), the percentage of down payment required, the interest rate, and the total monthly payment. It may or may not be issued specific to a given property.
A preapproval letter is essential to making an offer on a home. Why? Most importantly, it shows the seller that the buyer is truly capable of purchasing the property. It also gives the buyer peace of mind that they can afford the home and its associated costs.
A preapproval letter is generally issued after the mortgage lender has reviewed the buyer's credit, income, assets, and monthly debts to determine how much they'll be able to afford to spend on their housing payment.
Many buyers do not know that there are loan programs which allow as little as 3.5% down payment, or that down payments can come as gifts in certain scenarios.
Mortgage payments consist of PITI (principal, interest, taxes, and insurance). Many online mortgage calculators do not take taxes or insurance into account, but it's vitally important to include these costs in calculations as they can add significantly to the monthly payment.
It is recommended that buyers meet with a lender prior to starting their home search so that they're fully aware of the upfront fees and ongoing costs associated with owning a home.
If you're in the market to buy a home, I'd love to refer you to my trusted network of mortgage lenders and assist you with your search. Get in touch here or give me a call at 630-248-1976. We can sit down to discuss the buying process and your situation so that you can plan your move. No cost, no obligation, no pressure.
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Information provided by Laurie Christofano, Accredited Buyer's Representative with The Pych Team at RE/MAX In The Village.