To set yourself up for a smooth and successful home purchase, getting pre-approved is perhaps the most productive first step you can take. It strengthens your buying credibility, informs your home search, and speeds up the closing process.
The Pre-Approval Process
There is an important distinction to made between two important steps of your mortgage application process: pre-qualification and pre-approval. They are similar in that they both help to inform your financial standing, but there are key differences between the two.
Pre-qualification is the first step in your mortgage application process. It will help you to understand the approximate loan amount you can expect to qualify for. You’ll begin by sharing your financial information—debt, income, assets, etc.—with you bank or lender. After reviewing the information, the bank or lender will give a loan estimate. The process is relatively simple, only taking a few business days to process.
The pre-approval process is more involved than pre-qualification. After submitting a mortgage application, your lender will require all the necessary info to conduct a thorough credit history check and review of your financial health. Getting pre-approved will give you a better idea of how much you can borrow, estimated monthly costs, and what interest rates you can expect on your loans. Mortgage pre-approvals are typically valid for 60 to 90 days.
Benefits of Pre-Approval
The truth is, each home on the market can only go to one buyer. To maximize the chance that your offer is accepted, sellers need to know that your offer is serious. Getting pre-approved shows that you are financially prepared and, in the event that your offer is accepted, there will be no hold ups in obtaining your mortgage. This assurance is what sellers want to know about their potential buyers, especially in a seller’s market.
Not only does pre-approval help to bolster your case as a buyer, but it also Indicates your affordable price range. By knowing your budget, you will be able to hone your home search and start preparing offers, eliminating any potential wasted time looking at houses you can’t afford.
Once your offer is accepted, you’ll be counting down the days to move-in. Unfortunately, the closing process can often drag on, leaving buyers feeling like they’re in post-purchase limbo. Pre-approval will speed up the closing process, since the mortgage approvals have already been taken care of, allowing you to focus on next steps like appraisals and inspections.
When to Get Pre-Approved
Being financially prepared for a home purchase is a solid indicator that you’re ready to go about getting pre-approved, but what does that look like? Buying a house means taking on serious debt, so it’s worth your while to begin forming a long-term strategy for paying off outstanding debt before getting pre-approved. Having adequate savings for a down payment is a sign that you’re ready to make your offer.
by Sandy Dodge