In today’s economy, house hunters need every advantage they can get when purchasing a
home.
That’s because the housing market is ultra-competitive right now. There are simply not enough
houses on the market to keep up with demand. So buyers need to be ready to move quickly
when they find the house they want to purchase.
That’s where pre-approval comes in. Getting pre-approved for a mortgage gives home buyers
an advantage over the competition. A pre-approval lets you know exactly how much money the
bank will loan you so you make your best offer quickly. The pre-approval also lets the seller
know you are qualified to buy the home which can help you secure a contract faster, keeping
the competition out.
While you can start your home search without a pre-approval, real estate agents recommend
taking this step first.
What is a Pre-Approval and Why is it so Important?
A mortgage pre-approval is assurance from your lender that it will provide you with funds to buy
a home up to a certain amount. The lender uses your credit score, income documentation, bank
statements, pay stubs, and other financial records to approve you to purchase a property. Once
pre-approved, the buyer receives a statement of the maximum amount he can spend on a new
home along with the estimated interest rate, closing costs, and monthly payments.
Keep in mind that this is not the same as a pre-qualification. A pre-qualification doesn’t use
accurate, verified information, only self-reported information, to provide buyers with an estimate
for what they can spend.
Though it requires more time and effort up front, the benefits of getting pre-approved far
outweigh the inconveniences:
● Makes you a more serious buyer. Sellers will take you and any offer you make more
seriously. They know your offer is less likely to fall through in the final stages if the bank
has already done its credit checks for pre-approval. This also gives you more negotiating
power.
● Gets you showings quicker. In some markets, real estate agents won’t show a house
to someone who isn’t pre-approved. Being pre-approved also helps you get a showing
quicker when a house you want hits the market.
● Speeds up the closing process. Closings can go faster because your financial
information is already in the lender’s system.
● Gives you confidence. Having a pre-approval lets you make offers confidently because
you know exactly what your borrowing limit is. It also eliminates unwelcome surprises
that may arise in the closing such as a poor credit score that may ultimately prevent you
from buying a home.
The bottom line is that even if pre-approvals aren’t required in your market, you should still
make the effort to get one before you start your home-buying journey.
It provides peace of mind to you, your real estate agent, and sellers that you are a serious
shopper, and it gives you the ability to move on a property quickly. In today’s highly competitive
market, this could make or break your chances at buying the home of your dreams.
