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Don't Skip This Step When Buying a Home
Pre-approval. It's the first step every homeowner should take before shopping for a new home. Our real estate agents recommend starting with this step because it helps narrow your search to homes within your price range. It also gives your offer added weight when you find the home you want to purchase. Whether you have excellent credit or a significant down-payment, getting pre-approved for a mortgage is a step you don't want to skip.
The Many Advantages of Pre-Approval
We are in a low inventory market, which means that sellers receive multiple offers for their homes. Many times the offers are above the listing price. As sellers consider their options, the knowledge you're serious about and can close the deal gives you an advantage. It also helps you know how high you can go if a bidding war erupts.
Longer-term, a mortgage pre-approval helps protect your finances. While you may think you can afford a more expensive home, it's not a gamble you want to make without confirming with the bank. In the current market, lenders will only approve borrowers for amounts they can comfortably afford.
In this regard, pre-approval also helps expedite your search by narrowing down the list of potential homes to those that are within your price range. This can significantly reduce the number of homes on your horizon, which can help you find the ideal home faster and more efficiently.
Pre-approval also allows you to examine the "Four C's." These are:
- Capacity to make the payments
- Capital/cash reserve at your disposal
- The collateral that you want to purchase
- Credit history and your ability to service your financial obligations
The Pre-Approval Process
The first step of the process is to gather and get your financial documents organized. You will want to make copies of your W-2s, bank statements, credit reports, tax returns, proof of residency, and employment records.
Once you gather your documents and submit them, the lender will review them and determine whether you meet their lending requirements. In addition to your employment history, the lender will look closely at your credit history, including your credit score, assets/liabilities, income, and debt-to-income ratio.
The pre-approval process can be as short as an hour or as long as a week. Different lenders have different processes, so you will want to prepare for this as you start your homebuying journey. In fact, you will want to submit multiple applications from different lenders at the same time. This minimizes the impact on your credit score and gives you the opportunity to select the lender with the best rates and loan terms and conditions.
Pre-Approval is Not Pre-Qualified
Pre-qualified is merely an estimate of what you may be able to borrow. Conversely, pre-approval is a confirmation of what you can borrow and what the lender will loan you to make a purchase. While pre-qualification can help you narrow your search, it does not offer the same negotiating power that a pre-approval does when you are ready to make an offer.
Are you ready to look at homes in the area? Contact us, and our team will help guide you through the steps ahead of you. It's our pleasure to help you secure your mortgage pre-approval and schedule showings of the homes that make it to the top of your list.
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