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What you need to know about mortgage pre-approval and leveraged investing

Home loan / reverse mortgage or transforming assets into cash concept : House paper model , US dollar hessian bags on a wood balance scale, depicts a homeowner or a borrower turns properties into cash

Mortgage pre-approval and leveraged investing are two parts of real estate you need to get acquainted with. The former allows you to make a tempting home offer, while the latter creates potential for you to earn higher profits from your investment.

Continue reading to learn more about mortgage pre-approval and leveraged investing.

All about mortgage pre-approval

What is mortgage pre-approval?

Mortgage pre-approval is something you obtain from your preferred banks o lenders. Having one means the institutions have evaluated your capacity to borrow money. Most importantly, you are given an amount, specifically how much money you can get for the loan.

What is the difference between pre-qualification and pre-approval?

Pre-qualification is the initial step when you shop for a mortgage. You submit documents that paint a picture of your financial capabilities to the bank or lender. As a result, you will be given about the types or size of mortgage you can qualify. This is nothing specific or definite, but it should give you an idea how much home you can afford.

Pre-approval, on the other hand, carries more weight. Banks and/or lenders will scrutinize your documents and give you a specific amount for the loan. You can commit to this, and once you find the property you want to purchase, you can proceed to finalize the loan.

Why is mortgage pre-approval important in buying a home?

Being pre-approved by your preferred bank or lender tells sellers that you are a serious buyer. Moreover, it can speed up the final steps of the mortgage application.

What are the needs I need to be pre-approved?

You need to submit the following requirements:

  • Proof of income
  • Proof of assets
  • Employment verification
  • Credit report

Before you apply for mortgage pre-approval, it helps to request for your credit report beforehand. This way, you will be able to improve your credit score and settle disputes, should there be any.

Leveraged investing 101

What is leveraged investing?

One way to invest in the United States is to use financial leverage in order to gain more profits without doing much. In this case, the leverage you use in investing is borrowed capital.

Although leveraged investing enables you to increase your profits, it also leaves you vulnerable to more risks.

Where does the borrowed capital come from?

You can borrow money from a great number of sources. It can be from someone you know, such as a family member, a friend, or a business partner. You can also borrow capital from your preferred bank or lender.

How does leveraged investing work?
Leveraged investing works several ways. Two of the most popular are as follows:

  • You can use the borrowed capital, plus a mortgage loan, to purchase real estate worth double the money you got. (Ex. $100,000 borrowed capital + $100,000 from the loan to get a $200,000 property. You get 50% leverage.)
  • You use the borrowed capital to purchase two properties, with financing covering the remainder of the cost. As a result, the leverage is 75% and you increase your potential profits.

When is the best time to invest using financial leverage?

Since there are many risks involved, the best time to use leverage in your real estate investments is when property values are constantly rising.

So before you apply the concept of leverage, make sure to do property research about the market. Examine the history and trends. Having an investment strategy also helps minimize risks.

Heller Coley Reed is your DC real estate expert Connect with the team today at 889.907.6643 or hellercoleyreed(at)gmail(dotted)com to learn more about mortgage pre-approval and leveraged investing in DC real estate.