Getting preapproved for a mortgage is a great option to have before you go shopping for a home.
This enables you to know the price range you should be approved at when you make an offer on a home. It will also prevent you from looking at properties out of your price range and getting excited for something that may not work at this point and time.
The regular process for getting preapproved through a bank or mortgage broker is the following:
- Initial meeting to discover your wants and needs and any other relevant info.
- An application may be completed at the first meeting or after depending on your situation
- Confirmation of income and down payment funds
- This is done differently for employees vs self-employed individuals
- Go search for a home and make an offer!
It can be a very simple process or a complicated one depending on your particular situation.
The simpler your situation the more solid your preapproval will be.
- first time home buyer with 5% down payment
- full time employee that has been at your job for 2-3 years
- great credit
It doesn’t get much more solid than that, so you can be quite sure of the amount you would be approved for.
But let’s say this was the scenario:
- Self-employed for 2 years
- Gross income of $100,000
- Net income of $20,000
- 10% down payment
- Good credit
This is not as solid of a scenario as the banks are harder on self employed people and due to this person writing off so much of their income the bank will only consider the $20,000 as opposed to the $100,000.
There are ways to use more of the gross income and that is where using an broker experienced with self employed clients can be a great tool.
One last item to mention is that a preapproval is not a guarantee that you will be approved for a mortgage. It is a professional’s opinion based on their experience of how much you should be approved for.
The simpler the situation, the more solid the approval.
Hope this helps and please contact me with any questions.