By Sally Mohr
Although pre-approval doesn’t automatically mean you will qualify for a particular loan for a house you find, there are many benefits to being pre-approved.
You’ll know how much you can afford. Due to increased restrictions on the mortgage industry as well as fluctuating interest rates, what you could borrow five months ago may not be the same as today. You can minimize anxiety and last minute loan surprises if you know what you qualify for before you begin shopping and what can change your affordability during the process (credit score, interest rate, debt/income ratio).
You will save time by looking at the right homes. Before you spend hours of your time house hunting (perusing homes on Trulia and Zillow or asking your agent to show you ten houses a day), it is important to know what you qualify for first to narrow the inventory of homes to only those that fit your parameters. This way, you’ll save time by checking out homes you can actually afford to buy instead of falling in love with pie in the sky.
You’ll avoid disillusionment. When you complete the pre-approval process with a lender, you will find out what interest rate you qualify for, the dollar range you can search in, and the payment that you should expect. You can minimize anxiety and remove last-minute loan surprises that could disqualify you. The offer and negotiation aspects of home buying are already stressful, last minute loan surprises that are discovered between the time your offer is accepted and the date you are scheduled to close will add extra stress and work for you.
You’ll be able to beat out the competition. Sellers will be more likely to immediately accept your offer, especially if it’s a multiple bid offer, if you have a pre-approval letter to accompany your offer. Knowing how much you can borrow will also allow you to be more strategic about your offers and understand what an offer increase could do to your monthly mortgage payment. You’ll also know when it’s time to walk away or (if you can afford to do so) increase your offer amount. You won’t lose time by going back to the bank and risk losing the home, if you know how much you can negotiate upfront.
You can do your homework first. When you get pre-approved before you start looking at homes, you have more time to research products, companies and analyze your total costs. If you wait until you want to place an offer on a home, you could be rushed and might not have time to sort through all your options. Taking your time to get pre-approved could save you a lot of money in the long run. Also, you’ll get a taste of how the different lenders respond to your inquiries. This is usually a tell tale of how they will communicate with you after your offer has been accepted.
If you have any other questions, feel free to call me at 206.372.4711 or send me an email at firstname.lastname@example.org.