Are you wondering about the process to be prequalified and preapproved for different loans? We talk about how you can obtain FHA, VA, or conventional loans.
Ask a fish to climb a tree. Expect the cat to swim underwater. Can they do it? The answer is no. Every situation’s demands are different.
Similar to cats and fishes, you may need different types of loan financing to buy your next real estate. For that, you have options like government-backed and conventional loans. Each one has its own advantages and can be used in specific situations.
But before we talk about these loans, the real question is, “Is it a good idea to directly opt for the loan?” It might be better to start off with a warm-up and see if your credit history and financial position are enough to lend you a loan. And if it is, what loan amount are you eligible for?
To answer burning questions, you have the processes of prequalification and preapproval.
If you want an idea about the loan amount you are eligible for, prequalification is the way to go. This is where the lenders assess your financial indicators by asking you various questions.
Instead of verifying your claims, the lenders believe what you report. That is the reason why the prequalification takes less time to complete.
Because the lender does not verify your documents or claims, the loan amount that you are prequalified for might be as accurate as a preapproval one.
Generally, the lender may ask about your
Remember, being prequalified for a mortgage does not guarantee that you will get it. But prequalification does increase your chances of getting financing for your next home.
The lender evaluates your financial standing to assess the loan amount that you are eligible for. It would seem like we are talking about the prequalification process again, right? But we are not.
The major difference between prequalification and preapproval is that the lender verifies your claims with documented proof.
This process is not an overnight thing and can take a long time to complete. But that wait might be well worth it because you will get a much more accurate loan amount estimate than the prequalification process.
Being pre-approved for a mortgage lays a positive impression in front of the seller. They would know that you have gone through the verification process and are highly likely to get financing. This increases your chances of standing out and striking the perfect deal.
Lift your hand up and observe. What do you see? All five fingers are of different sizes. Similarly, there are different types of loans, each having a different prequalification and preapproval process.
Let’s talk about it.
The Federation Housing Administration loan is a government-backed mortgage for people who have trouble meeting the requirements of a conventional loan.
Some big attraction of the FHA loan is that you can have your loan with a
As we have mentioned, prequalification does not take long. Specifically for the FHA mortgage, you can even be prequalified for a mortgage by applying online or talking to your lender on a call.
As the lenders don’t have to verify your documents, you may not even have to meet them physically.
Gaining preapproval for the FHA loan can be a much lengthier process as compared to prequalification. The first part of the process is to file an application and declare financial pointers like your income, debt, credit score, and others.
Like the preapproval process for all loans, you also need to share documents to verify your claims.
With the FHA loan, you can expect a prequalification and preapproval for a higher loan amount. That is because the requirements are lower than a conventional loan.
These loans are for active duty service members, retired ones, and surviving spouses. As this loan is guaranteed by the US Department of veteran affairs, lenders ease up on their requirements.
Usually, making a down payment of less than 20% means you have to apply for private mortgage insurance (PMI). But in VA loans, lenders generally don’t require you to make a down payment or opt for a PMI.
Some of the information that you may have to give the lender for a VA loan prequalification includes.
For now, you only have to respond to the questions from lenders. You don’t need to show proof of your claims.
You have just seen a list of information needed by the lender to share during the prequalification. To get pre-approved, you need to show the relevant documents to prove them.
Some of these documents can be:
Once these documents are verified, you can be preapproved for a VA loan.
We have talked about government-backed loans like VA loans and FHA loans, along with their process of prequalification and preapproval. All that is left now is to talk about our everyday conventional loan, where the lender is more in control.
Since conventional loans are not government-backed and lenders are at risk that you, the borrower, may default, you may find a higher upfront payment. You may have to make a higher down payment and closing cost.
Similar to government-backed loans, the prequalification process is fast, and you have to give information to the lender. Based on your responses, you get a loan amount estimate.
Before deeming you preapproved for a conventional loan, the lender will verify all of your documents as proof of your claims. This process does take a longer time than prequalification, but you will get a much more accurate loan amount.
It is always a good idea to get an estimated loan amount before starting the home-buying process. Along with the buying process is looking for a property, and that is where HAR makes things easier.
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