5 key reasons why pre-approval is a must
Buying a home is a life-altering decision. There are many intricacies of home buying that you need to be familiar with before starting the process. At the same time, you must also feel secure about making a purchase. One way to do it is by getting pre-approved by a lender.
Mortgage pre-approvalessentially tells sellers that you are good to go. They can trust that a deal won’t fall through (at least not because of financing) when negotiating with you. This plays a crucial role in your home buying process in proving that you’re a financially vetted buyer.
There are other ways a pre-approval benefits you, too:
1. It clarifies what’s affordable
If knowledge is power, you’re about to feel a lot more powerful. From location to layout to landscaping, there’s plenty to consider when buying a new home. But one of the most crucial aspects, at least initially, is the cost.
You must have clarity about affording a home as it is a significant investment. Knowing what you can spend aids in your decision-making, as it narrows your options; no longer will you be searching fruitlessly outside of your range. Pre-approval gives you that necessary.
As mortgage pre-approval states the loan amount that you can afford. Once you have it, you can set a realistic budget and put an offer on a home that you can finance—with confidence.
2. It builds your credibility
With a pre-approval letter in hand, you become a credible buyer. This is especially important in a seller’s market such as the current market in the U.S.
In a seller’s market, home inventory is low, and demand is high. Buyers who can cut the competition are at an advantage. Getting pre-approved shows that you’re financially prepared, and that your offer will secure a mortgage immediately.
3. It leaves room for negotiation
In a seller’s market, bidding wars are common. You may already be aware that sellers in desirable neighborhoods or with attractive properties will receive multiple offers. But pre-approval gives you some room to bargain and negotiate. Since you know how much you can spend, you can counter an offer and still feel comfortable that it’s within your range of affordability.
Also, you can negotiate with the seller on the inclusion of home warranty costs or other costs. Your pre-approval gives you that leverage.
5. It expedites the closing process
You know how those fast passes at amusement parks allow you to cut in line? What if you could slice your wait time for buying a house?
With a pre-approval, it’s possible. Closing on a home typically takes around 50 days, which includes mortgage approvals. But a pre-approval accelerates the closing process as it essentially eliminates that step. You can then shift your focus onto appraisals and inspections.
Getting a mortgage pre-approval
To get a pre-approval, you’ll need to approach money lenders—and it’s best to shop around online to get a sense of who is offering mortgages in your area. You can read reviews that others have left, but the most important action to take is to get a personalized quote.
You’ll need to provide specific financial details including your income, assets, and other personal information. If you meet the eligibility criteria of the lenders, your mortgage application will most likely be pre-approved within a few business days.
Why this number really counts
The 2008 financial crisis was due to mortgage lenders knowingly allowing homeowners to borrow more money than they could reasonably afford. Many since lost their homes.
Thankfully, safeguards are in place today to ensure that there’s no sequel to the crisis. So once you’ve received a pre-approval with the maximum amount of loan you can afford, you can be sure that it’s a realistic threshold. Be judicious about your spending, and you’ll be on the way to affording a house and paying a mortgage that won’t keep you up at night. And that kind of security is worth every penny!