Getting a Mortgage Pre Approval

Getting a Mortgage Pre Approval

When considering getting a mortgage pre approval, many people often only look at only the positives. There is even a good possibility if you qualify, you may even get a pre approval within hours of applying. However, there are several risks to taking out a mortgage that potential homeowners should know before making this large financial decision. One of the biggest considerations of taking out a mortgage is the amount of interest that is accrued over the life of the loan, or perhaps there is not enough benefit as compared to renting. Everyone's situation is personal, and you can not use the same ‘paint brush’ for everyone's own personal situation as there are also pros and cons of renting as well. There are myriad situations where it may or may not be beneficial to buy a home.

This can add up to thousands of dollars, depending on the size of the mortgage and the annual percentage rate. Depending on what could occur, you might need to shop around for offline or online home insurance and other costs associated with the loan. Explore the potential downsides of mortgages and if they resonate with your current goals.

Loan terms for getting a mortgage pre approval

When you want a mortgage pre-approval, you may want to discuss with your broker if you desire a fixed rate or an adjustable one, this should be based on your risk factor but will ultimately come from what you decide.

Fixed-Rate loans

Your interest rate and monthly payments are generally locked in or fixed rate for the life of your loan. That can be a big benefit if interest rates rise over time.

If rates were to fall, you could end up paying more than you need to if interest rates fall, so you may want to get a ‘check up’ on your situation to see if there is a benefit for your particular situation.

Adjustable-Rate loans

When considering a mortgage, you may want to inquire about an adjustable-rate mortgage (ARM) because of the lower interest rate. An important point to keep in mind is that ARMs typically have shorter fixed terms compared to term fixed-rate mortgages.

Down Payment

The down payment is the amount of money that you put towards the purchase of your home and it is typically a percentage of the home’s value or purchase price. By working with your lender and budgeting carefully, you can come up with a plan to make one and get into the home you want.

Saving for a down payment on a home could be an important step in the home-buying process. The size of your down payment might affect the monthly mortgage payments and how much interest you’ll pay over the life of your loan.

Closing Costs

When you're buying a home, the list of expenses is long and closing costs are one of them. Closing costs are fees charged by the lender at the close of a real estate transaction. They can range from the loan amount and are due at closing.

While closing costs are generally a necessary part of the home-buying process, do note that they are not always negotiable. Another downside is that they can come as a surprise to buyers who aren't expecting them prior to discussing the loan with your broker, and prior to getting a ‘Loan-Estimate’. Some costs may have different names associated with them that can be difficult to understand, they can add to the overall cost of buying a home and put a strain on your budget. Title costs can be one of such costs, but keep in mind you may be able to shop around for a title company along with the costs associated with this.

Getting a Mortgage Pre Approval

Taxes and Insurance

Property taxes are something you might have to pay which may be different than if you were previously renting. This can add up to significant costs over the long term.

As a renter, you may not think that you need insurance. But, if something happens to your belongings or someone gets hurt while at your home, you could be held responsible, you may want to seek the advice of an attorney and your insurance professional. Renters insurance might be able to help protect you from having to pay for damages or medical bills out of your pocket.

The cost of renters insurance depends on a few factors, including the value of your belongings and the amount of coverage you need. Generally, you should be able to customize your insurance a bit, adjusting protections and deductibles.

Conclusion of Getting a Mortgage Pre Approval

A mortgage is a loan over a period of a term that can last for decades. The monthly payments are made to the lender, and the interest rate on the loan might be fixed or arm depending on the plan, and of course there may be a unique hybrid as well. It’s also a way to finance the purchase of a home without having to pay the full price upfront.

When you take out a loan, you might need to pay private mortgage insurance (PMI) if you borrow more than 80% of the home's value, at times there are products that are geared towards lender paid PMI as well. You might pay property taxes and home insurance. In addition, other costs associated might need to be paid as well, such as flood insurance, or advanced payments for taxes and insurance called ‘escrow’.