A mortgage preapproval can make the difference between a quick, successful home financing and purchase process and a stressful financing nightmare.
Different mortgage lenders have different definitions for preapproval. You’ll want to find one that verifies income and credit at a minimum. Some lenders take you part-way or all the way through the underwriting process before offering a preapproval. The further you get during your preapproval, the less you’ll need to do later.
Here are 5 reasons to get a preapproval before starting a new home search.
- You will save yourself time and heartache because you’ll know what you can afford. When you work with a mortgage lender to get a preapproval, the lender should review your income, assets, debts and credit to provide an amount they will be willing to finance. When you know how much home you can afford, you’ll avoid spending time or getting your heart set on a home outside that price range.
- You will avoid unexpected credit problems that can arise in the home financing process. When you seek a preapproval, you can go ahead and ask the lender to follow the full underwriting process, which will provide a thorough look at your credit history. Any “surprises” that might otherwise derail your application can be identified and addressed.
- You will better understand the costs of your loan. You may see an ad for a very low interest rate and be tempted to use the closest mortgage calculator to calculate a prospective payment and purchase price you can afford. There are several potential problems with this scenario, and a frank discussion with a mortgage lender during the preapproval process can help. Foremost, know your interest rate will likely be based on your home financing scenario, not based on the best case the advertised rate likely represents. The actual interest rate offered on your loan can vary based on your credit score, the amount of down payment, the type of property you intend to purchase, and more. A mortgage loan officer can also talk to you about the other costs associated with home financing – required down payment, appraisal and title search costs, and more. Just as you can avoid surprises that could arise with your credit, you can avoid surprise expenses.
- You are more likely to “win” in a competitive market. If sellers receive multiple offers on their home, they are more likely to select a buyer who has been pre-approved and will successfully make it to the closing table on time. This surety might even entice them to accept a lower offer or to treat the pre-approved buyer the same as a cash buyer.
Plus, if the home inspection reveals any problems, the seller may be more willing to negotiate with a buyer whose financing is secure than they would with a buyer that could fall out of the process anyway. - You can get to the closing table – and into your new home – faster with a preapproval. If you have already gathered documents and gone through at least part of the underwriting process before you look for a home, the time between making your offer and closing can be expedited (another reason sellers love buyers with a pre-approval). By getting much of the work done ahead of time, you can spend those short days until closing preparing to move into your new home rather than preparing your mortgage application and documentation!
Getting a preapproval before looking for your new home just makes sense. And lenders will typically offer to take you through the process without obligating you to use their services. There’s nothing to lose, and much to gain for your purchase and financing process!