What are pre-approved mortgages and how do they help?
If you are looking for a mortgage, you have many options available to you that will make that mortgage more affordable. One of the best options that you have is to get pre-approved mortgage. This article will go through what a pre-approved mortgage is and what it can do for you when you are looking for new real estate financing.
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– What exactly is a pre-approved mortgage?
In most cases, people look for the house that they want first, only going to the bank for a mortgage loan after they determine the property that they want. This is not a very smart way to go about buying a house in the wake of the 2008 banking and housing crisis. Banks are much more stringent about who they give money to, and if you do not have all of your ducks in a row when it comes to your financial records, you will get the worst deal if you get one at all.
A pre-approved mortgage lets everyone in on a real estate deal know that you are a low risk. You do not have to go to the bank after you find a property that you want – the entire point of a pre-approved mortgage is to set your budget from the very beginning of the process. Once this is done, you will not have to worry about a great deal of drama from the financial side of your negotiation. You will simply be able to negotiate with the real estate dealer for the best price on a house that you want.
– What exactly does a pre-approved mortgage do for me?
The first and perhaps most important aspect of a pre-approved mortgage is that it gives you peace of mind. You know that you will not be embarrassed during any part of the real estate buying process if you have your finances in order from the very beginning of that process. You will not upset any real estate agent who after showing you a house finds out that you cannot afford it because you do not have financing in place. You will also be able to negotiate lower prices with sellers if they know that they will have no trouble getting their money from the financial institution with whom you are partnered.
If you have money on the table and you are ready to spend it, people become much more likely to give you a deal. This is especially true in the case of distressed properties in which owners are under a microscope and they have to sell for default on the property. These people would rather have some money than no money at all. Having a pre-approved mortgage will cause these people to do much better business with you because they will not be as have a risk of default on their property.
Having a pre-approved mortgage may also get you better terms on your interest rate. If you are able to get a lower price on the house, you can put down a higher percentage on your down payment. This can save you money on a PMI insurance package that is usually required of you if you are placing down less than 20 percent of the total price of the home. The more money that you are able to put towards the principal on the house rather than an interest payment, the shorter time period that you will need to pay the principal back. This can save you tens to hundreds of thousands of dollars on the total price of your mortgage.
Once you have a pre-approved mortgage, you will also be able to lock in your interest rate for a certain amount of time. You never know if a bank will have second thoughts after your initial visit depending on the type of house that you are looking for. It is usually best to make sure that you have your interest rate set in stone before you make the final purchase of a house. This will help to ensure that your bank does not go back on any agreement that it made informally. A pre-approved mortgage is not 100 percent set in stone, but a bank is looking at a great deal of trouble if it ever goes back on this agreement.
Getting your finances pre-approved at one bank does not preclude you from going to another bank with a better deal. All that this arrangement means is that some financial institution considers you a low risk. As a matter of fact, you can use this information in order to get a better deal from some banks in some cases. Do not be afraid to do this. Remember that you are trying to get the best deal overall for your mortgage, so do not consider anything written in stone until you sign your name to the paper.