Advantages of a Mortgage Pre-Approval
For many people, the first step in buying a home is finding a real estate agent. While this is an important step, it’s actually better to initially meet with a lender to see if you can get pre-approved for a mortgage. (Some realtors even require pre-approval before they accept new clients.) Being pre-approved means you know you can get a loan and how much you’ll be able to borrow.
Starting with a pre-approval means you’ll have time to compare lenders instead of scrambling to satisfy the terms of a purchase contract after you make an offer. Being pre-approved doesn’t commit you to work with that particular lender, but it will make it faster to close on a loan since they’ll already have your paperwork on file.
The biggest benefit of being pre-approved for a mortgage is knowing how much home you can afford. You can save a lot of time by eliminating houses outside of your price range, and the disappointment of falling in love with a house only to discover that you don’t qualify for the necessary loan amount.
Having a pre-approval letter when you submit an offer on a home is a great negotiating tool. It means you’ll be able to close on a loan faster, which is usually very appealing to sellers. Plus, if a seller receives multiple offers, the one with the pre-approval will generally be chosen.
One thing to remember is mortgage pre-approvals generally expire 60 days after they’re written. This is because many things can change over the course of a couple of months – your income, employment status, credit score, and even interest rates. Therefore the lender will update your paperwork so you can continue to enjoy the benefits of being pre-approved.
The process of looking for, and buying, a home can sometimes feel overwhelming, but a pre-approval can make the process less stressful. More information is available online, or you can meet with a regional mortgage loan officer to discuss your alternatives.
Pre-Qualification vs Pre-Approval – What’s the difference?
When you’re pre-qualified, you’ve self-reported an overview of your financial history to a lender. Based on the information you give them, they’ll give you an estimate of the loan amount they think you’ll be approved for.
A pre-approval is similar, except you provide documentation of your financial history. The lender pulls a credit report and gives you a written estimate of the loan amount they think you’ll be approved for. While pre-approval doesn’t guarantee you’ll receive a loan, it’s a step beyond a pre-qualification.