Reasons Why You Should Get a Loan Pre-approval First

For first time home buyers looking for great mortgage deals, the terms “pre-qualified” and “pre-approved” might sound one and the same. They’re actually different. Prea-pproved buyers are given more priority over pre-qualified ones because they’re one step ahead of the game. When you’re handed a pre-approval letter by your lender, this means that you can actually narrow down your choices of homes now because the parameters of the sale are better set.

With the clear price range and loan terms figured out, your broker can now narrow down his/her mailing list to the right homes that will fit your needs.

Avoid Surprises

When you’re shopping around aimlessly for available homes in the market, you only end up getting very disillusioned because you can’t afford certain “dream houses”. Pre-approval can’t stretch your funds for a new home, but it can shield you from disappointment. After being pre-approved, your home choices will be screened according to your limitations and capacities as a buyer.

Better bargaining and negotiating powers

With your credentials all laid out on the table, you have better chances to negotiate lower interest rates and better deals with the home seller. Your pre-approval assures the seller that his/her home is already sold. You won’t be a fly-by-night client who disappears after squeezing the best deal out of him or her.

Understanding Loan Locks

Loan locks are probably your best weapons against a highly volatile market. In other words, although locking your loan for a specific term incurs fees from the lender, you’re at least given the peace of mind that you will only be paying for the interest rate you signed up for.

Investors actually advise borrowers to lock their loans all the time. The interest rates tend to fluctuate everyday. As a borrower, you need to lock the loan to protect yourself from unexpected expenses.

Once you lock your loan though, you will not be able to enjoy the benefits of rate drops in the future. This is alright, because it’s better to pay a fixed monthly amount. You will be able to control your budget better this way.

In terms of losing points with your loan, rest assured that you will only lose about half a point anyway whenever you decide to lock your loan.

If the locked loan doesn’t work out for you, you can risk it and look for a better loan elsewhere. There’s a high probability that you’re lender will even negotiate lower interest rates for you when you do this. Banks generally don’t like losing their clients.

Should you Seal the Deal with the Bank or a Mortgage Broker?

When you’re considering a mortgage, there’s no one clear answer on who seals the better deal for you: a bank or a broker. On the plus side, a mortgage deal with a bank keeps you in direct, personal communication with bank employees. On the one hand, you have the advantage of having the bank employer sift through numerous loans within that specific banking institution to find the right loan for your lifestyle. On the other hand, your choices are limited only to what the bank has to offer. Other banks might have lower rates, but you won’t be able to know about these unless you do the scouting yourself. A mortgage broker is a middle party between the lender and the borrower. Ideally, a mortgage broker gets service fees from the lender for bringing a borrower his/her way. A broker may also ask for fees from the borrower because s/he scouts for the lowest interest rates available in the market.

You need to warn your mortgage broker to limit his/her choices of lenders to local banks. The processing period of online, overseas banks are generally longer because they don’t really have a full understanding of the properties needs. In other words, unless all of the lender’s questions have been settled, you won’t be able to close the deal.