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Are you looking to buy a home in the near future? With the simple act of getting your home loan preapproval, the mortgage process instantly becomes streamlined and buyers take you more seriously. Here’s why preapproval is the number one thing you can do to help speed the home buying experience!
Buying a house is for many a major life milestone. It’s a sign of maturity and adulthood, showing you’ve worked hard to achieve financial independence. As opposed to a prequalification, which many people can achieve simply by putting unverified numbers into an online tool, getting preapproved for a mortgage shows that you’ve created a strong track record of financial responsibility and have the documentation to back it up.
Why Is Mortgage Preapproval So Important?
It’s important to get preapproved at the beginning of the homebuying process. This not only protects you against surprises later in the home buying process (like finding out your credit score wasn’t what you thought it was, or that your budget is only 80% what you expected) but also gives you a stronger hand to play in the bidding process, as sellers are more likely to take you seriously if you’ve already completed a large part of the home loan application process.
By getting preapproved, you already prove you’re qualified to hold a home mortgage, and you show buyers that you’re serious with any offer you make. They’ll know you’re shopping within your price range, and you have a preapproval letter to demonstrate your financial ability. Being a qualified buyer can be the key to securing your dream home even in a highly competitive market.
Right now, there is a limited housing inventory. This means there are fewer homes for sale than there are buyers, which creates some serious competition. According to the National Association of Realtors (NAR), home sellers are getting an average of five offers, meaning they are spoiled for choice.
For a seller wanting to close quickly, a buyer with a preapproval letter has a distinct edge over one who hasn’t even tested the waters with mortgage lenders yet. They know you’ve already done the preliminary work of submitting your documentation including your credit report, pay stubs, and bank statements for verification. Your mortgage preapproval letter shows that the lender has confidence that you can make the down payment as well as your monthly payments, and is prepared to give you a loan.
The Best Things About Mortgage Pre-Approval
Here are the best things about being preapproved for a mortgage:
A preapproved mortgage loan application is a strong playing card
According to Freddie Mac:
“By having a pre-approval letter from your lender, you are telling the seller that you are a serious buyer, and you have been pre-approved for a mortgage by your lender for a specific dollar amount. And, in a true bidding war, your offer will likely get dropped if you do not already have one.”
Shopping is easier when your budget is pre-set
Being pre-approved for a home loan helps solidify your home buying budget and ensures you’re looking at homes in your price range. You’ll already have an idea of how much house you can afford, the costs and fees to buy a home, your anticipated down payment and monthly payment, and how much your maximum loan amount is. You won’t be wasting time looking at homes outside of your budget, and you can make an offer in a competitive market with full confidence.
Your credit score/credit report won’t be a surprise
Nothing is worse than being deep into the home buying process and then realizing your credit reports have been hiding some false or unexpected information that torpedos your loan application. Having a verified approval assures sellers that you’ve already passed this critical step in the prequalification process in regard to all of your financial details. Your bank accounts, monthly debts, monthly income, and credit reports have all checked out, and that you’re prepared to move forward with your home buying journey.
Faster closing so you can move into your dream home sooner
What’s more, a mortgage pre-approval will speed up the closing process. Here, since the mortgage approvals have already been taken care of, you can focus on the next steps like appraisals and inspections. This is especially helpful when you are trying to buy a home while the selection is limited. Thus, there is no denying that in today’s market, connecting with a lender to get pre-approved may be the game-changer that helps you secure your dream home.
Mortgage Preapproval Vs. Mortgage Prequalification
Understanding the difference between a mortgage preapproval and a mortgage prequalification is very important, as the first won’t give you any leverage or preapproval letters you can use with home sellers.
The preapproval process is often slightly different for each mortgage lender, and takes more than just a few minutes, unlike a mortgage prequalification, which only gives you a very approximate idea of how much mortgage you may be able to get.
A preapproval is much more detailed. You’ll need to have all of your documents together, and may submit your application online or with the help of a lending specialist. Your information will be verified and your documents reviewed and checked on to make sure everything is accurate. Then your lender can lay out your mortgage options based on the lending services they provide.
With a mortgage preapproval, home loan approval is just around the corner
The preapproval contains almost all the steps of the actual home loan approval process, minus the steps that have to be completed when you find a specific home to make an offer on (like appraisals and underwriting). You’re more than halfway to a complete approval when you complete the preapproval process.
A mortgage preapproval will also reveal your estimated home loan costs such as the monthly mortgage payments, closing costs, insurance, property taxes, title fees, and more. You’ll be able to figure out what interest rates you can expect on your loan, and then you’ll have 60-90 days to go house hunting before your preapproval letter hits its expiration date.
Bottom Line: Always Get Preapproved
Ultimately, a pre-approval letter is a gamechanger for homebuyers, especially in a competitive market. It shows sellers you are a serious contender and adds heft to any offer you make. Home pieces keep going up, but mortgage rates are low, making this a great time to get into the home of your dreams.
Get a real estate agent (sellers pay all commissions for real estate agents, so it costs you nothing!). Check out mortgage lenders and research your options. Find a mortgage company that understands your unique financial situation, and can help you get the best loan, not just the biggest one. Then go house hunting and discover your dream home!