The Advantages of Getting Pre-Approved for a Mortgage
One of the first steps in the process of buying a home is to get pre-qualified or pre-approved for a mortgage. Unless you are a cash buyer, you (and your potential home seller) will want to know going in where you stand financially in the transaction.
Pre-Qualification vs Pre-Approval
Mortgage pre-qualification is a quick process that reveals potential credit issues and affordability. But when it comes to getting your offer accepted, a formal mortgage pre-approval is the gold standard in achieving a successful transaction.
Unlike prequalification, which provides an estimate based on what you tell the lender, pre-approval provides you with the specific loan amount and the interest rate you qualify for.
When getting pre-approved your credit will be checked, income verified, and your asset-to-debt ratios will be analyzed.
Why Get a Mortgage Pre-Approval?
- Pre-approval acts as a dry run of the loan application process. The mortgage lender will use details you provide about your credit, income, assets and debts to arrive at an estimate of how much mortgage you can afford. The whole process may take only minutes or a few hours at most and is free.
When you are ready to buy, most of the paperwork will be completed and your loan will have a greater chance of closing sooner.
- While a "pre-approval" is non-binding to the lender (because the information you provide has not been verified), it does serve as a good indication to potential sellers of your general creditworthiness.
- You will have even greater negotiating power because financing will already be approved.
- Sellers will know your loan will likely close without trouble or delays.
In today's market most sellers will NOT accept an offer without at least a pre-approval letter, so if you are serious about buying this is the first step towards getting you in your new home!