Several steps in the home-buying process can make things run smoother for everyone involved. One step that is commonly overlooked is the process of getting a mortgage pre-approval before submitting offers. Getting pre-approved often takes as little as a few days, but it can go a long way in getting your offer accepted and speeding up the closing timeline.
As the real estate market continues to heat up, homebuyers should consider getting pre-approved before ever touring their first property. That way, they know exactly what price range to look at and can make a concrete offer when the right home presents itself. Keep reading to learn how to get pre-approved before you start the home-buying process.
What Is A Mortgage Pre-Approval?
A mortgage pre-approval is a document issued by a lender stating the amount a homebuyer would be able to borrow when purchasing a property. The pre-approval process verifies the potential homebuyer’s income, credit score, assets, and more to determine if they are eligible for a home loan. Lenders will then estimate the necessary down payment, loan amount, and interest rate for homebuyers when shopping for properties.
Why Get Pre-Approved?
The pre-approval process is crucial for homebuyers because it allows them to shop around for the best mortgage lender. By searching for a pre-approval with a few different lenders, buyers can find the best interest rate and loan amount they will be eligible for. In addition, this provides a better frame of reference for the future monthly mortgage payment, which can be crucial when establishing a price range.
Pre-approval letters also go a long way when buyers are ready to make an offer on a home. These letters demonstrate to real estate agents and sellers how serious you are about buying a property. Some agents even require pre-approval letters before starting a home search, though it all depends on who you are working with. Essentially, pre-approval letters can help you set a budget and make serious offers.
Pre-Approval Vs. Pre- Qualification
A mortgage pre-approval and pre-qualification are somewhat similar, and https://americashpaydayloan.com/payday-loans-va/ you may hear these two terms used interchangeably at times. However, there is one significant difference that will make an impact when it comes time to submit offers: a pre-qualification does not require a hard credit check. Pre-qualifications require less information than pre-approvals and only review your income and debts. At the end of a pre-qualification, you will receive an estimated loan amount, but no documentation showing your eligibility.
The purpose of a pre-qualification is to give potential homebuyers a better idea of their optimum price range and monthly mortgage payment before shopping for houses. This can be a great way to gauge your financial health and make any adjustments before seeking out a pre-approval and working with an agent. Remember that pre-approvals carry weight during the home-buying process, while a pre-qualification is just a starting point for aspiring homebuyers.
Pre-Approval Vs. Approval
A pre-approval occurs before you submit an offer, but you will need final approval to purchase the house. Note that obtaining a pre-approval does not lock in your loan terms. Lenders will request information about the property before approving the final loan. They typically want to know the following details:
Title Status: The lender will request a title search to make sure there are no ownership claims or tax liens against the property.
Appraisal Value: The appraisal value needs to be verified before lenders approve the final loan. They want to make sure the appraisal price is not lower than the purchase price – as this could suggest a bad investment on their part.
