Ready to go looking for your dream home? Wondering why sellers and real estate agents are asking for your preapproval letter? Here’s why you need to get preapproved before you make an offer.
Why a thorough preapproval is best
A lot of mortgage companies and online lending sites offer “fast, easy prequalification”, but what they don’t tell you is that a prequal isn’t really worth much. That’s because a prequalification is just a fast, algorithmic evaluation of information you supply about your employment status, income, and monthly debts, plus your own estimate of your credit score.
Once the actual verification begins, and things like your debt-to-income ratio are fed into the mix, you could find your estimated loan amount to be way off. Plus, if you can’t back up your income claims, don’t have money set back for your down payment, or your credit check turns up some nasty surprises, your loan approval could be in jeopardy.
Sellers trust preapproval letters
In contrast, a preapproval letter means your ability to buy a home and may the mortgage have already been evaluated. Your credit has already been pulled, your assets and income verified, and you’re pretty well assured to getting the loan you’ve applied for.
If you have an approval letter, and the rest of the buyers looking to make an offer have only prequals or nothing to show, you’re going to be an automatic strong leader in a bidding war. The seller will have more confidence in actually completing the home sale if they accept your offer.
A preapproval makes home purchasing faster
Getting a preapproval means actually sitting down and filling out your loan application, and following up by submitting all of your documentation for verification. You may have even already gone through underwriting. Since you’ve done so much of the work up front, your closing date can be set with confidence, and you can zip through the rest of your purchase within ease.
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