4 Reasons Why Getting a Pre-Approval is Important
If you are considering purchasing a home, then chances are you will need financing from a lender in order to do so. Unless you are coming in with all cash, here are 4 good reasons why you should get a pre-approval before you decide to shop around.
What is a mortgage pre-approval? A mortgage pre-approval is a statement from a lender that says you are qualified to borrow up to a certain amount. It also includes a specific pre-approved interest rate, though this number can change depending on how soon you put in an offer on a home since mortgage rates are variable. To come up with the promised loan amount, lenders take into consideration the same factors they would consider for a traditional mortgage approval, including your debt to income ratio and your credit score. The better your financial situation looks, the more you’ll be pre-approved to borrow. Why is this so important? Let's take a look.
1. It determines your buying power. In essence, it let's you know exactly how much home you can afford. We all have that special number in our head of how much we are willing to spend on a home. Sometimes that number is too high and sometimes it is low. The last thing you want to do is to find a home that you are absolutely in love with and the lender tells you that they can not finance it because it is out of your allowable budget. When you get a mortgage pre-approval, you’re able to set your budgetary limits and make sure that any home you’re looking at is a home that you will be able to finance.
2. It narrows down the neighborhoods. When you know your budget, you also know what areas you can afford. This will save you, as well as your realtor, a lot of time and energy because you can focus on the neighborhoods that are actually in your price range rather than areas that would ultimately make you house poor.
3. It makes you an attractive buyer. Once you have found the home of your dreams, you are going to want to submit an offer to the seller. The seller is going to want some assurance that you are a serious buyer and not wasting there time. Having a pre-approval gives them proof that you area qualified buyer and deserve the opportunity to purchase their home.
4. It speeds up the closing process. Most lenders today are doing a deeper dive when qualifying a buyer. This works to your advantage, because all of the preliminary paperwork is completed and out of the way, allowing you to focus on finding the home and making an offer with confidence. Although this may seem like an inconvenience in the beginning, it will save a lot of time on the back end. When you know your budget, you also know what areas you can afford. Just remember to get check back with your mortgage lender 90 days after you do get pre-approved because your credit history will need to be reviewed again to stay current.