The Importance of a Pre-Approval
If you’ve ever shopped for a house, or are thinking about doing that in the future, then chances are you have thought about mortgage pre-approval at one time or another. What is pre-approval? Why should you get pre-approved? Is it just something lenders cooked up to rope you in? Now that I’ve shopped for and bought a house, I have had the time to research the topic and understand the value and significance of it.
There are several advantages to getting pre-approved for a home loan. The first is that by getting your preapproval, you can focus only on houses that are within the range of what the lender will finance for you. Secondly, getting pre-approved gives you a leg up over other potential buyers who are not pre-approved. If two people have put in the same offer on a house, the seller is more likely to go with the person who is pre-approved, knowing that he already has his ducks in a row, and knows what he can afford. From the seller’s perspective, that could make the whole process go more smoothly, with less chance of the buyer backing out because of financing issues.
It is also important to note that there is a difference between pre-approval and pre-qualification. Pre-qualification is a very simple process that takes your word for your income and credit and then estimates what the lender would be willing to finance for you. Pre-approval, on the other hand, requires that you submit documentation proving your income, as well as your credit history, giving the bank a more accurate basis on which to pre-approve you.
It is best to get a pre-approval before you even start looking for a house. Once you have pre-approval in hand, you’ll know exactly how much the lender will finance for you, as well as the down-payment expectation on such a loan, which will allow you to fully realize the financial responsibility of purchasing a house.