Yes. A preapproval provides a detailed analysis of your finances and gives you an idea of your borrowing potential and the interest rates you might qualify for, making the entire process smoother and more transparent.
You’ll know what you can afford – getting preapproved before you shop is imperative, as it allows you to shop within your price range.
It gives you negotiating power – Having a preapproval always puts you ahead of a buyer who doesn’t. This is a game-changer when you’re in a bidding war with others.
It makes you more relevant – When the seller knows that your information has been reviewed by a mortgage underwriter, it makes everyone involved more confident – and gives your offer more significance.
It will help you save, not spend – When you’re in the market for a new home, it’s easy to get caught up in the excitement of making purchases. Having the details on your new home’s interest rate, closing costs and down payment will help you curb your urge to buy outside of your budget.
You’ll get the keys faster – Getting preapproved up front makes everything else move quicker. You’ll close faster, which means you’ll move in faster.
Get Pre Approved
Complete Your Easy Online Application
It’s time to budget. You’ll need to take several things into account when determining how much you can comfortably afford. Consider your monthly income, your savings and how much of a down payment you’ll be making.
You’ll need to contemplate and estimate your housing costs, including the annual property tax, homeowners insurance costs, and routine maintenance.
Tally up your expenses. This includes things like car payments, credit card payments, food, gas, groceries, entertainment and clothes.
Once you calculate the income you have coming in vs. the expenses you have going out, you will have a better idea of what a comfortable monthly mortgage payment will be for you.
You should not necessarily get a mortgage for the full amount you’re approved for. When a lender examines your debt to income ratio, they will provide you a maximum loan amount based on your finances, but borrowing this full amount can leave you very little room in your budget for savings, other needs or unexpected expenses.
Bottom Line – Your lender will inform you how much of a mortgage you qualify for but the affordability should be based on what you’re comfortable with given your monthly budget.
What Can I Afford?
Try our Affordability Calculator
Total Monthly Debt Payments/Gross Monthly Income
A Debt-to-Income (DTI) ratio is a percentage that shows how much of your gross monthly income goes toward paying monthly debt obligations. To calculate it, you add up all your monthly debt payments, including rent/mortgage, credit cards, student loans, and auto loans, and then divide that sum by your total gross monthly income before taxes. Lenders use your DTI to assess your financial health and ability to repay new debts, making it a key factor in loan and mortgage applications.
A down payment is the upfront cash sum a home buyer pays toward the purchase price of a home, with the remaining amount covered by a mortgage loan. Putting a higher amount down may lower your interest rate and build equity in your home faster.
Down payment amounts vary depending on the type of loan. Some loan types may require less of a down payment, such as only a 3% to 5% down payment, but will require Private Mortgage Insurance (PMI) if less than 20% down. Federal Housing Administration (FHA) loans require a 3.5% down payment, while the U.S. Department of Veterans Affairs (VA) loans & U.S. Department of Agriculture (USDA) loans may not require any money down at all.
Private mortgage insurance (PMI) lowers the risk to the lender by protecting them against payment default, so you can qualify for a loan that you might not otherwise be able to get with less money down.
Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home will need to pay for private mortgage insurance with most loan programs.
If you are required to pay private mortgage insurance, it will be included in your total monthly payment that you make to your lender, your costs at closing, or both. Private Mortgage Insurance (PMI) rates vary by down payment amount and credit score.
PMI is paid monthly and can be cancelled once you hit the equity threshold required by the lender for conventional loans.
FHA private mortgage insurance cannot be cancelled and lasts for the duration of an FHA loan. In addition, FHA loans have an up-front MIP (Mortgage Insurance Premium) fee that is financed on top of the base loan amount.
VA loans do not require private mortgage insurance, but may require an up-front financed VA guarantee fee if the Veteran is not exempt. This fee is financed on the base loan amount.
USDA loans do require Private Mortgage Insurance, but at a reduced rate. There is also a USDA funding fee that is financed on top of your loan required by USDA Rural Housing.
Your credit score plays an important role in determining whether or not you qualify for a loan, as well as the type of loan you may qualify for and the interest rate. Lenders use your credit score to determine risk. While higher credit scores usually mean better rates, you may still qualify for a mortgage loan even if your score is less than perfect.
Your FICO® Score is used to make this determination. Learn more about your FICO® Score and what version is used when applying for a mortgage HERE
Lenders require several documents when applying for a mortgage to confirm your income, assets, property information and more. You will be provided a list of what documents are needed at application, and can prepare yourself for what’s required by referring to our document checklist. It’s important to send these documents in a timely manner to help keep things moving and close quickly.
What Do I Need?
The Document Checklist
There are many different types of mortgage home loans. Whether you choose a conventional conforming loan, or one of the many government sponsored loans (i.e. FHA, VA, USDA), many things must be factored into your decision, such as loan term length, fixed or adjustable, loan amount, down payment and credit score.
Talking with an experienced mortgage broker can help you understand these different loan types limits and guidelines and determine the type of loan that is the right fit for you.
Types of Mortgages
Home Loan Options
With a fixed rate mortgage, the interest rate does not change for the term of the loan, so the monthly payment is always the same. Typically, the shorter the loan period, the more attractive the interest rate will be.
Payments on fixed-rate fully amortizing loans are calculated so that the loan is paid in full at the end of the term. In the early amortization period of the mortgage, a large percentage of the monthly payment pays the interest on the loan. As the mortgage is paid down, more of the monthly payment is applied toward the principal.
An adjustable rate mortgage (ARM) is a mortgage with an interest rate that may vary over the term of the loan — usually in response to changes in the prime rate or Treasury Bill rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates.
Mortgage holders are protected by a ceiling, or maximum interest rate, which can be reset annually. ARMs typically begin with more attractive rates than fixed rate mortgages — compensating the borrower for the risk of future interest rate fluctuations. There are many factors to consider with an ARM. Read more about it HERE
Many buyers opt to negotiate seller concessions in their purchase contract to cover any closing costs or prepaid taxes, insurance, and interest. This allows the buyer to produce only the minimum down payment, but may not require them to also come up with the closing costs out-of-pocket if paid by the seller.
There are limits as to the percentage (%) that a seller can credit to a buyer depending on the loan type. You can see those limits HERE
Certainly most situations won’t require these max concession amounts, but it’s good to know during the negotiation phase. Your Loan Consultant can provide the best advice when negotiating credits and the amount to request if so.
You can also receive Lender Credits to cover some or all closing costs, but this will have an impact on your interest rate chosen. You will want to discuss all interest rates and cost/credit options in which you qualify for with your Loan Consultant. Recapture analysis and understanding the benefits in lender credits is a very important part of rate lock and loan comparison.
Most mortgage loans require an appraisal. Here’s what to typically expect during the appraisal ordering process –
You will be asked to provide the credit card information for the appraisal fee in your secure loan dashboard or you can call your loan officer directly with the card details.
The appraisal can be ordered once you have successfully signed your initial set of loan disclosures and intent to proceed.
Appraisals are required to be ordered directly from a 3rd party Appraisal Management Company (AMC). The appraisal fee will be charged to your card directly by the AMC. Appraisal fees vary by loan type, location and complexity. *VA appraisals are not paid up front but are paid for at closing
Your loan officer or lender is not allowed to choose the appraiser, the AMC will assign to a local appraiser of their choosing who accepts the assignment. Once assigned, the appraiser will contact the agent(s) to schedule the appraisal inspection on purchases or the borrower(s) to schedule on refinances.
Turn times vary depending on location and availability. You can have the appraisal rushed at an additional fee if the AMC can find an appraiser to accommodate the request.
Once the report has been completed and reviewed, we will send you a copy of the report and any accompanying notes if applicable.
Closing costs are processing fees that include any applicable lender fees, appraisal fees, credit reporting fees and title and escrow fees.
Escrow funds are also part of your closing costs. Escrow holds reserved money for property taxes, homeowners insurance and mortgage insurance if applicable.
Closing cost fees vary depending on your loan type, loan amount and location but are typically 2 to 4% of the loan amount.
Borrowers have the option to choose a slightly higher rate which will provide them with lender credits that they can use to directly lower their cash to close (closing costs).
Alternatively, they can choose a lower rate with additional discount points, which buys the interest rate down but will require more cash at closing.
Both buyers and sellers pay closing costs. However, the buyer usually pays most of them. You can negotiate with a seller to help cover closing costs, which are called seller concessions.
There are limits on the amount that sellers can offer toward closing costs. Sellers can only contribute up to a certain percentage of your mortgage value, which varies by loan type, occupancy and down payment.
Prior to closing your lender will provide you a Closing Disclosure (CD), which will list every closing cost individually and how much you owe in total.
Take your time reviewing this disclosure and make sure to ask your lender any questions you may have or for more information or clarity on any the fees.
There may be tax benefits associated with owning a home, such as deductions for mortgage interest payments, real estate taxes and mortgage points. Tax credits may also be available for low-to-moderate income homeowners. Check with your tax advisor for a full list of deductions.