Get pre-approved for a mortgage
Homebuyers often forget one of the most important steps in the home buying process: arming themselves with a pre-approved mortgage loan before they begin their house hunting.
A pre-approved mortgage loan is a lender’s commitment to lend to the homebuyer, with specifications on the exact loan amount. To get pre-approved, homebuyers need to provide personal financial information — such as income, debts and assets — to a lender. Applications are usually approved with certain caveats. However, with the lender committing to the loan amount and interest rate up front, buyers can have confidence that adequate financing is in place before they start shopping for a home.
There are numerous advantages of having a pre-approved mortgage loan, which include the following:
Establishing an advantage in a competitive market: Having a pre-approval letter provides the homebuyer with an edge in a multi-offer situation. Sellers prefer working with potential buyers who are pre-approved in order to avoid the threat of a deal falling through because the purchaser cannot get sufficient financing. An offer with a mortgage pre-approval letter carries far more weight than an offer with only a pre-qualification letter or no letter at all. In fact, sellers often accept offers from pre-approved buyers over buyers with higher dollar offers who have not been pre-approved.
Finding the best possible type of loan: Working with a mortgage lender before looking at houses allows the homebuyer plenty of time to evaluate what mortgage product works best for their financial goals. Once they decide upon the kind of loan that they want and are pre-approved, homebuyers can then focus on finding their dream home.
Establishing the price range: Getting pre-approved for a mortgage enables homebuyers to determine, prior to house hunting, how much money they qualify for, and how much they can afford to spend. The real estate sales associate and homebuyers can then focus on finding homes in the established price range.
Seeking comfort with the loan amount: By taking the time to seek pre-approval, the homebuyer can select a comfortable loan amount. In many cases, buyers can qualify for mortgages that are more expensive than what they feel comfortable committing to for the long-term. Buyers often end up acquiring a more expensive home than they want merely because it works on paper. It’s important for a buyer to purchase a home that they can afford.