If you are shopping idly for a home, it is okay not to be prepared and just enjoy a pleasant experience. However, if you are a serious home-buyer, there is no room for making a mistake as you must be well-prepared for the entire process. As someone who is looking for a dream home, you benefit hugely by being prepared in advance and having a pre-approval letter to show the home seller.
If you have just moved to Cleveland, you must be aware of the real estate market situation. The median home price in this area is $104,000 and the median monthly rent equals $1,168. There are already a limited number of homes for sale in Cleveland OH so before you waste all the time in getting the mortgage approval, it is better to be pre-approved.
Difference between Preapproval and Prequalification
Most of the time, these two terms are used interchangeably but they have different meanings. Prequalification means a quick overview of all your finances to check if you can afford a home or not. It is helpful but not concrete enough for lenders and home sellers to provide you with the home.
On the other hand, a preapproval shows your complete financial history and income and proves that you are able to afford a home for yourself. It implies that you have completed the mortgage application and have enough creditworthiness to afford a new home. It takes into account your income, debt, and assets and verifies them.
Let us provide you with the detailed steps to follow if you want to get the pre-approval to buy any house in the market:
Prove Your Income
It is actually impossible that a lender or a home seller will give you a house without properly documented proof of your income. Gone are the days when lenders had a “no verification” or “no documentation” policy to grant the loans. A complete record of your earnings for a minimum past two years is required to prove your income.
You also need to declare the extra earnings, bonuses, or alimony which you have received in recent years. The lender would also ask you to show your tax returns for the past couple of years to ensure that you are a responsible citizen and have not been evading the tax levied on you by the government.
Declare Your Assets
The lender needs your bank statements and investment account statements to ensure that you do have enough money to pay for the down payment, cash reserves, and the closing costs. The amount of the down payment varies according to the loan type and also the lender from whom you want to get the financing from.
If a friend or family member is helping you out to pay the down payment, you would need a gift letter from them to assure that these funds are not a loan. Being transparent with the lender will only help you in getting pre-approved quickly and increase your chances of getting a home sooner.
This ratio plays a critical part in getting approval. If you already have a poor credit score, a hefty study loan, and numerous pending credit card bills, the chances are quite low that you will qualify for the mortgage. With so many responsibilities, it is actually quite impossible to afford a house.
The maximum debt-to-income ratio for the qualification of a mortgage is 45%. It is ideal if your ratio is lower but if it is higher, you might need to reconsider your decision of buying a home. Some lenders have even capped the ratio at 36% but it depends on their individual choice. It is better to be careful and not to have too many loans if you aspire to buy a house.
Usually, the creditors require a score of 620 or above if you wish to get approved for a conventional loan. It is impertinent to maintain a good credit score so that the lender is satisfied that you’ll pay your mortgage timely. Some creditors may even require a score of 760 before they can approve a loan for certain applicants.
People who have a low credit score must make a large down payment. There are a few lenders who would like to work with such borrowers who have a minimum credit score because this allows them to get a good amount as the down payment.
The Bottom Line
If you are already pre-approved, it becomes a breeze to look for homes for sale in Cleveland OH and buy one immediately. You don’t have to wait and miss the opportunity of buying a nice home just because it took time to get approved from the lender. Home buying is not easy so you must be as prepared as possible to make good, timely decisions.