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MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

Home Buying Steps

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image

CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. The Importance of Getting Preapproved as a First-Time Homebuyer

MORTGAGE

The Importance of Getting Preapproved as a First-Time Homebuyer

What you'll learn:Learn about getting preapproved and why it is necessary

EXPECTED READ TIME: 8 minutes

June 19, 2023

The importance of getting preapproved as a first-time homebuyer

If this is your first time submitting a mortgage application, it's normal to wonder how a preapproval works. Understanding various parts of the loan process can be challenging for a first-time homebuyer. Remember, you are not alone. With a preapproval comes many benefits, like understanding your budget, appearing as a serious buyer to sellers, and negotiating confidently. Opting for a preapproval brings you closer to purchasing your dream home without surprises.

Preapproval vs. Prequalification

During the mortgage process, you might hear different parties use the terms prequalification and preapproval interchangeably, but it's important to know there are key differences.

Both a prequalification and preapproval provide borrowers with an estimated idea of how much home they can afford. However, a preapproval is a more official estimation requiring your loan originator to verify loan conditions with documentation such as pay stubs, tax returns, and a social security number. On the other hand, a prequalification is a less official inquiry of income and assets that does not affect your credit score and provides a rough estimate of how much home you can afford.

Which Should You Apply For?

If you are serious and ready to begin your home buying journey, a preapproval letter provides an accurate budget before house hunting. Hitting the real estate market without a plan wastes time, depletes energy, and might leave you discouraged when a more prepared buyer wins the bid. With a preapproval, the calculation of expected interest rates and qualification of specific loan programs are predetermined.

A prequalification is a good choice if you are still deciding whether or not you are ready to purchase a home. Since a prequalification doesn’t involve a credit check, your score is not affected. A prequalification can give a rough estimate while you build a long-term budget or a plan to elevate your credit score for when you're ready to purchase a home.

Getting a preapproval letter

An official preapproval letter states you are approved to borrow a specific amount of money based on your income, assets, and credit history. It allows more bargaining power with agents and sellers as it speeds up the closing process and eliminates surprises. In fact, many sellers, and specific cities in competitive real estate markets, require a preapproval before making an offer.

Reasons to get preapproved

One good thing about getting a mortgage preapproval is that there are no downsides. It speeds up your mortgage experience and puts you in a better position to bargain. Are you still feeling a little confused? Here's a simple breakdown of all the positives of securing a mortgage preapproval.

  1. Know your budget.
    Understanding how much home you can afford and the loan programs you qualify for makes the home shopping experience run smoothly. Now, you can create a long-term budget to define your search even further. Remember, small details like the period of time you plan to live in the home can also affect mortgage rates and the type of loan program that best fits your financial goals.
  2. Negotiate with confidence.
    In competitive markets and populous cities, many sellers only accept offers from preapproved buyers. Without a preapproval, the deal might fall through at the last minute. A preapproval provides security for the seller and places you ahead of other buyers who haven’t secured their financing.
  3. Close faster.
    When originating loans, a lot of information and documentation is collected. Applying for a preapproval obtains most of the information necessary to originate a loan upfront, speeding up the loan process and eliminating any financial surprises.

If you get declined for a preapproval

We understand the frustration that comes with getting declined for a preapproval. If this happens to you, there are a few ways to make sure you qualify in the future. Follow these simple steps to get your financial goals back on track. 

  1. Find out why you got declined.
    There are many reasons why someone might get declined for mortgage financing. Be sure to speak with your loan originator and have them give a detailed explanation to understand where to make improvements or changes.
  2. Get credit report errors corrected.
    Obtain a copy of your credit report and determine if there are any errors on your credit report. If you spot errors on your credit report, you can dispute them by contacting a credit reporting company.
  3. Improve your credit score.
    If you need to improve your credit score, asking your loan originator for resources is a great place to start. You can also utilize assistance from online credit counselors and counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD).

If you're serious about purchasing your first home, it's time to contact your loan originator and apply for a preapproval. After all, there are no downsides to securing a preapproval except home shopping without one!

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

What Is a Preapproval? | PenFed Credit Union

A preapproval is a key part of starting your homebuying process. PenFed Credit Union explains what a preapproval is, why you need one, and how to get it.

two people standing in front of their first house

Soft Credit Check vs. Hard Credit Check: What's the Difference? | PenFed Credit Union

Understanding the differences between soft and hard credit checks can help you better manage your finances.

Family walking dog through neighborhood

How To Get Your Offer Accepted in a Seller’s Market | PenFed Credit Union

Getting your offer accepted in a hot market isn't always easy. Discover our top strategies to help you purchase the home you want. Read on.

Woman on phone with moving boxes

What Is a Closing Disclosure? | PenFed Credit Union

A closing disclosure is an important document you'll receive three days before you close your loan. Understanding how to read it will help you double-check the specifics of your mortgage.

military personnel being handed keys to new home
image

CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Draw Period. During your Draw Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of October 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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Routing #256078446

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IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website that is not a part of Pentagon Federal Credit Union.


The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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