Whatever it may be, one thing is true that for any big decision, being informed gives you the power to be more confident to take a decision. A mortgage pre-approval calculator provides you an in-depth picture of your financial condition, and you feel more confident because it will also help determine what kind of mortgage you are eligible for.
What is Mortgage Pre-Approval?
Mortgage pre-approval is the process of evaluating your creditworthiness, how much you can mortgage, and what type of mortgage you will be able to get. In the pre-approval process, the lender will typically assess your financial report, i.e. your financial background, credit rating, and credit report. Based on this, the lender will provide an estimate of how much loan you are eligible for depending on your income and liabilities. By assessing your eligibility using a mortgage pre-approval calculator, you may also have an idea of what rate of interest you may receive.
The mortgage process is a lengthy one, and getting pre-approved is an excellent way to speed up the process. A mortgage pre-approval letter indicates your sound creditworthiness, and that you are a serious buyer. Being pre-approved, you know how much house you can afford. This makes the home-buying process less cumbersome for you because you can choose from the homes that meet your eligibility criteria. It also puts you a step above other buyers who might be interested in the same property. You are in a better place to negotiate with the property seller because the likelihood of closing the deal is higher if you are pre-approved.
Need mortgage pre-approval? Calculate what you qualify for first! Use a mortgage pre-approval calculator today.
Mortgage Pre-Approval vs. Mortgage Pre-Qualification
Mortgage pre-approval and mortgage pre-qualification are often used interchangeably, though, they are two different terms.
Mortgage pre-qualification is just the initial step of having a loan. It does not dig too deep into your financial condition, and only considers factors such as your annual income, credit score, employment status, what kind of mortgage you are considering, interest rate and mortgage term, etc. Based on the assessment, the lender provides a rough estimate of how much loan you are likely to qualify for.
On the other hand, a mortgage pre-approval calculator evaluates your financial situation comprehensively, including your credit report, credit rating, proof of assets, tax records and other parameters. Based on the calculation, your financial credibility is determined for the type of mortgage you are looking for. Having a pre-approval letter means you are able and ready to make a purchase; however, a pre-qualification does not.
Getting pre-qualified does not guarantee pre-approval. Even if your credit score is good, but your financial documents do not support the same, you can still be turned down for a mortgage.
How to Use a Mortgage Pre-Approval Calculator?
The pre-approval calculator can provide you with an idea of what to expect when you are planning to get a mortgage. Different lenders use different types of pre-approval calculators, but they commonly include the following parameters:
- Your annual income
- Annual income before taxes
- Other income sources if any
- The mortgage term you are considering
- The rate of interest for your mortgage type
- Credit score range
- Your expenses – car loan EMI, credit card, other loans
- Details of bankruptcy or foreclosure if any
- Number of dependants
Based on the above parameters, the calculator will derive an approximate loan amount. Some lenders also provide an estimate of monthly repayments and total interest amount payable.
Here, it is essential to understand certain things. Firstly, different types of mortgages have varying Debt-to-Income (DTI) prerequisites. For instance, standard home loans have DTI regulations different from that issued by the Federal Housing Administration (FHA). The estimated loan amount that the mortgage pre-approval calculator provides will vary depending on the DTI requirements of the type of loan you are considering.
Secondly, a smarter way is NOT to borrow 100% of what the lender offers. Several lenders provide a higher loan amount in addition to the estimated amount. This ‘maximum’ amount is based on the ‘absolute most’ that your finances can afford. If anything happens unexpectedly – say you lose employment or have a massive medical bill to pay – it might turn out difficult to repay the loan.
Benefits of Mortgage Pre-Approval Calculator
Need pre-approval to secure a home loan? Let a mortgage pre-approval calculator determine your financial credibility, and what you can afford. Learn more.
As a home buyer, you can enjoy several benefits of using a pre-approval calculator before you get into the talking terms with the lenders. Here are some of the advantages:
- Mortgage Pre-approval: If you are planning to buy a new home, a pre-approval calculator can help speed up the process by evaluating your creditworthiness and debt-to-income ratio. Simply fill up the important fields, and the calculator will provide you with an estimated mortgage amount, monthly repayments, etc. This way you are being pre-approved for the mortgage, i.e. the lender ensures you are a qualified home purchaser. Having pre-approval can make the mortgage process hassle-free and quick in most cases.
- Know How Much You Can Afford: One of the most significant benefits is that you can know how much house you can afford. A pre-approval calculator tells you an approximate amount you can borrow. So, you will know your budget precisely. There are many home buyers who waste time considering properties for which they will never get approval. However, if you are pre-approved, you know what fits into your budget and how much you can afford.
- Negotiate Better: When you have a pre-approval letter from your lender, it gives you an edge over other property buyers because the likability of closing the deal is higher with you. Pre-approval assures you are a serious buyer and is financially stable to aid the buying process. You will have better offers, while you will be in a better position to negotiate harder with the seller or real estate agent. A seller is likely to accept your offer because they know it is a sure thing. Thus, your odds of buying a home that you want would be greater.
Can I Get Mortgage Pre-Approval with Bad Credit?
Can I get mortgage pre-approval with bad credit – this is one question that many home buyers are worried of.
To be honest, if your credit rating is poor, your likelihood of getting pre-approved is slimmer. You might even find it difficult to qualify for FHA loan pre-approval if the credit score is below 500. But bad credit score is not the only reason that can prevent you from getting mortgage pre-approval. In fact, there are several lenders who offer pre-approved mortgage even where the credit rating is bad.
In such cases, a mortgage pre-approval calculator will fetch your credit report and offer an estimated loan amount with higher rates of interest than normal. You may have to explain your poor credit rating, but that is fine if you get pre-approval for a home loan. However, it takes longer to get pre-approved if you have bad credit. Typically, the waiting period may be somewhere between 60 – 90 days. And in the meantime, if your credit score improves (courtesy certain measures you take to improve your credit report), you can negotiate with the lender to have lower interest rates.
The bottom line is – you are still eligible to get pre-approved for a mortgage even if you have a bad credit score. However, be ready to pay higher interest rates. But that is good until you are able to achieve your dream of buying a new home.
Will Mortgage Pre-Approval Hurt My Credit?
You might be happy declared as creditworthy by pre-approval calculator, but do you know what impact it can have on your credit report?
When you seek mortgage pre-approval, the lender will pull your credit report to evaluate your financial stability and whether you are worthy of paying off a mortgage. This is called “hard inquiry.” And a hard inquiry can show up on your credit report.
While you might consider it something troublesome, there is good news for home buyers. Major credit bureaus understand the importance of comparison shopping when you plan to get a mortgage for your new home. Home buyers may compare interest rates and other factors from different lenders when securing a home loan. Every lender will evaluate your credit to pre-approve. That may ding your credit report. But in such cases, often the credit bureaus leave a certain amount of flexibility for the homebuyers. After all, not all hard inquiries mean you have a poor financial background or there is something to worry about.
If you are planning for the big investment – buying a new home – it is ideal to first determine what you can afford and how much you can pay off. A mortgage pre-approval calculator is your best bet to have a win-win situation, both in securing a home loan that fits your budget and also negotiating with the seller to have the best buy. Speed up the mortgage process with getting pre-approval today.