If you are getting a loan for your home, there is a very important step you should absolutely take before you begin looking at houses – getting pre-approved for your mortgage. This step is critical for a number of reasons:
You will know your budget – There have been many situations in which the buyer was looking for homes in a much higher price range than they were ultimately approved for. You can imagine their disappointment when they realized they couldn’ buy at the price point they had been looking.
You will have already done the hard work – When you get pre-approved, the bank has already approved you as a borrower. That means that if there are any issues with credit or late payments that you might have made in the past can get cleared up before you get caught up in an offer on a house.
The seller will take you seriously – If you make an offer on a house before getting pre-approved and you are competing with a buyer who has already taken that step, the seller likely won’t look at your offer favorably. In fact, it is standard to include a letter of pre-approval from the bank in the offer and in some cases, the listing agent may even call the lender to learn about potential risk factors.
You don’t want to miss an opportunity to get the home of your dreams – What if you find the home that is just right, but you don’t have your financial ducks in a row? You could miss out and be disappointed. Disappointed buyers have a hard time getting over the one that got away.
You may be able to close faster – The lender can sometimes commit to an earlier closing timeline if you have gone through full underwriting. You, as the buyer, have already been approved; it will just be a matter of making sure your chosen home is a good investment for the bank. Depending on your loan type, conventional or government-backed, there may be an inspection of the property and there will surely be an appraisal. Some lenders offer a guaranteed close in a specified number of days.
Don’t underestimate the importance of getting pre-approved. You can move forward with confidence have your pre-approval letter in hand, know your budget, and that the seller will be ready to negotiate with you.