These days, getting a letter or post card in the mail that says “Congratulations! You have been Pre-Approved or Pre-Qualified for a mortgage,” are as commonplace as the numerous credit card offers that we all receive, and they are worth the paper they are printed on.
Having a Pre-Approval from a lender or broker in your pocket, will greatly improve your chances of buying the house you want.
Here are some important facts about Pre-Approval for mortgage loans..
Apply before you buy
Although many people used to look at homes before applying for a mortgage loan, nowadays it is critical that you apply for a mortgage Pre-Approval first. This will allow you to know exactly how much you can afford to spend on a house, and find the property you want much more quickly and easily.
Pre-Approval vs. Pre-Qualification
There is a great deal of confusion between these two terms. To be Pre-Qualified simply means that based on your income and debt and the amount of cash you have for down payment and closing costs, assuming your credit meets the standards of the lender, you are qualified to apply for a mortgage loan at today’s interest rates. A Pre-Approval letter is different.
Obtaining a Pre-Approval letter
In order to obtain a Pre-Approval letter with most lenders or brokers, you fill out a mortgage application form listing your income and assets, and a credit report is run. Some lenders may ask for additional documentation, while others will issue a Pre-Approval subject to receipt of documentation to substantiate what has been filled out on the application. Once you receive your Pre-Approval letter, you can start shopping for your new home.
Looking at the right homes
If you have a Pre-Approval letter, you know exactly how much you can afford to spend on a property, and can narrow your search down to homes within this price bracket. This will help you to find a property to match your needs much more quickly, and make buying easier.
More negotiating power
If you have a Pre-Approval on your mortgage loan, you will be seen in the same way as a cash buyer. You already have the funds in place, so the seller is more likely to accept an offer immediately, even if it is below the price estimate. This is because they can be more certain that their house is sold, and can take it off the market pending the close of sale.
Quicker sale closing
One of the lengthiest parts of house buying and selling is the closing of the sale. If you have agreed to buy a house but do not have a mortgage in place, then it can take time to arrange the funds, and you might even find that you cannot get the funds you need. However, if you have a Pre-Approval, the funds are essentially guaranteed, and you can push through the transaction much more quickly. This will make buying a house much less stressful, and help you to get the home you really want.