Pre-Approval Mortgage Basics | Ann Arbor Real Estate

Shopping for homes in Ann Arbor, MI is simpler once you get pre-approved for a mortgage. One of the reasons that home buyers do this first is because they have a better chance at negotiating with sellers. It means that you are serious about buying a home and aren’t just “window shopping.” Since the real estate market in Ann Arbor, MI has allowed many home buyers to get into quality homes for low prices, the current market has turned around in the area and has allowed many homeowners to witness a rebound for their homes. While you may not have your perfect home selected, it will be helpful to beat out other bidders and get a fair price during house negotiations. Here’s a look at how to get started on pre-approval.

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What is a Pre-Approved Mortgage?

A pre-approved mortgage means that you have a commitment in writing from a lender that qualifies you for a loan amount. This number is determined by your credit history, credit score, previous mortgages, income and other factors. Once you receive this letter, it’s good for 60 to 90 days as set by the lender.

Why Not Wait?

Getting a pre-approval early in the house hunting process makes you look more attractive and serious to sellers. They see that you are actively shopping, and you also have a better idea of what you can afford. You can find houses that are in your price range and present real offers that will allow you to bargain more effectively with sellers. Most bank-owned properties also require you to have a pre-approval letter before they will accept an offer.

How to Get Pre-Approved

The first step is to contact a lender in Ann Arbor, MI. The lender typically responds to these requests within 48 hours if you provide all of the necessary paperwork. If you want to get an idea of what you can qualify for, there are plenty of calculators available for mortgages. In order to get pre-approved, you need some important documents. These include:

  • W2 for the past two years
  • Your pay stubs for the last three months
  • Tax returns spanning two years
  • Checking and savings bank statements for three months
  • Statements for other assets like bonds and retirement accounts
  • Name and phone number of landlord if renting or current mortgage documentation
  • Divorce decree if you have one
  • If self-employed, you’ll need business tax returns for the past two years and year-to-date profit and loss statements

What Role Credit Plays in Pre-Approval

Lenders always pull credit reports and check your score for anyone borrowing money for the mortgage. If you have a co-borrower, their credit history will also be looked at. Most lenders also charge a fee to do this. It shouldn’t be over $30. The lender looks at your credit report for any red flags like missed payments, late payments, charged off debt and other negative marks. Credit score is also a major determining factor. Lenders favor scores that are over 720 and will offer lower interest rates. Your overall debt will be calculated in what’s called a “debt-to-income” ratio. Basically if you have too much debt and not enough income, you won’t be a good candidate for a loan and may have a higher interest rate.

If you have tried to get pre-approved for a mortgage in Ann Arbor, MI before and you were denied, you can still improve your situation and talk to a lender again after a few months. Some things that help include correcting errors on credit reports, decreasing overall debt and increasing your initial down payment to better qualify for the price of the property.

Bad Habits to Avoid while Applying for a Mortgage

Most families save for years to buy their first home in Ann Arbor. Entering into a mortgage contract that will require several decades of payments is a process that requires smart decisions before, during, and after the application process. There are a number of simple mistakes that future homeowners tend to make during the application for a mortgage, and these errors may result in higher costs associated with home ownership.

When Things Go Wrong with Your Mortgage

The time that it takes to approve a mortgage is usually around a month and a half, and that’s a long time that a future homeowner must be on his or her best behavior. During particularly busy lending times, the wait may be even longer, and it’s imperative that a homeowner doesn’t make simple mistakes that could lead to a denial or higher interest rates.

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Bad Habits to Avoid During the Mortgage Process

1. Closing credit card accounts

One of the factors in determining an interest rate is the number of “revolving credit” cards a family has at any given time. A few credit cards with high balances that are at the limit represent a much smaller percentage of available credit than a half dozen cards with a higher available amount of credit. Don’t close credit cards while applying for a mortgage.

2. Applying for more credit

Getting a new car loan or applying for new credit cards is a terrible idea when a family has an active mortgage application. Even if the family car is a rust bucket that barely runs, it’s best to wait a few months before heading to the car dealership to get a new vehicle. Also consider holding off on any vehicle upgrades until the mortgage has been granted. Getting an SUV with a third row of seats can wait a few months.

3. Switching jobs or employers

One of the primary indicators that a borrower will be granted approval is steady work history. Lenders often have minimums in place regarding length of employment at a single employer, and switching jobs may throw off the entire mortgage process. Outside of extraordinary circumstances, employment must be maintained throughout the application process. Likewise, an application should never be made in the first place if employment history cannot be verified or isn’t consistent.

4. Failing to pay bills

There’s a lot of work that goes into applying for a mortgage. You try to do everything right, but if you have bills that aren’t being paid on time, then you’re application is at risk of being denied. Vigilance regarding debts and payments is just as necessary after the application process has begun as it is before an application is made.

5. Keep bank accounts stable

Moving money around into different accounts, making large deposits (or withdrawals), and opening new bank accounts aren’t activities that should occur during the mortgage application process. It’s crucial to have the paperwork, receipts, or records available to document why a large deposit or withdrawal was made. Try to avoid such activities entirely until the mortgage approval is complete.

Getting a Home Mortgage in Ann Arbor, MI

Ensure your home’s mortgage approval and a successful move by avoiding bad behavior during the mortgage application process. The best behavior will always be to remain steady and consistent with all financial dealings during the application process.

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