Getting Pre-Approved Has Its Benefits
With slowly rising market prices and historically low interest rates, the competition for purchasing a home is becoming fierce
in some parts of the nation. Bidding wars have become a common occurrence, with buyers paying tens of thousands over asking to get the hottest properties on the housing market.
Luckily, you can win big if you play your cards right. If you have a solid financial portfolio, a pre-approved mortgage could be your trump card. A mortgage pre-approval, which is a written document stating how much a lender is prepared to lend you, can gain you leverage to negotiate better terms for your home purchase
and let you walk away with a sweet deal. Think of it as your ace in the hole. Here are all the ways getting a mortgage pre-approval can benefit you:
Lays It All Out For You
When a lender pre-approves your mortgage, they are letting you know how much money they are willing to lend you based on your verified finances. In order to have your finances verified, you need to submit your financial documents as proof of your income and assets, plus allow the lender to check your credit. Once your finances are verified, the lender provides you with a pre-approval letter and good faith estimate stating
SEE ALSO: Mortgage Savvy: The Good Faith Estimate
- The maximum dollar amount the lender will loan you
- The interest rate and estimated monthly payments youre approved for
- The date the pre-approval will expire
- The loan programs you qualify for
- The lenders contact information
Helps You Spot Financial Issues
Since youll need to provide all your official documents and have your credit checked before getting a pre-approval, youll have all the information you need to check the status of your financial situation. This is good because it will allow you to identify any issues with your finances
(like a low credit score or too much debt), and give you some time to correct them before you start looking at houses.
Narrows Down Your Price Range
With your finances laid out and everything in check, you can now determine the price range of homes you can afford. Combining the amount you have for down payment with the maximum loan amount on your pre-approval will give you the top of your price range
. This narrows down the areas and neighborhoods you should consider.
Also keep in mind that there are closing costs and other fees that come with purchasing a home, so its best not to go over what you can afford.
As long as you stick close to your price range and dont go over your estimated monthly payment, you should be fine.
Makes You More Desirable To Work With
Real estate agents are busy people, with their compensation dependent on when a deal gets closed. That being said, real estate agents dont want to waste time on clients who dont have their financial documents and information in order.
Most agents wont even agree to work with a client who hasnt at least spoken with a lender. After all, how can a real estate agent help you find a house if you dont even know how much you can afford?
Boosts The Chances Of Your Offer Being Accepted
After finding a good real estate agent and looking at houses within your price range, youve finally found the perfect house and decide to put in an offer. In an ideal situation, you would start off low, then negotiate with the seller until you settle on an agreement. However, in bidding war, with several offers already on the house, youll want to put your best offer on the table or risk losing out
on the home of your dreams.
This is where a mortgage pre-approval can really help you out. Say you put in your max offer, the highest amount youre comfortable paying without going over budget. Then, say another buyer puts in an offer for the same amount, or maybe even slightly higher, but has no pre-approval. The seller is likely to take your offer more seriously because the other buyer has no financial proof to support their offer. In an active market, a lot of sellers wont even look at offers without a pre-approval
to back it up.
Speeds The Closing Process
Now that youve found your house and your offer has been accepted, the house will go into escrow, which is the time youll have to get your mortgage loan closed. Escrow typically lasts around 30-45 days, while the mortgage loan process will take about four to six weeks to close from the date of application.
However, a mortgage pre-approval can reduce the loan closing time by seven days or more,
because your credit and financial information has already been analyzed and most of the paperwork has been completed. This will also speed up the escrow closing time because youll be able to get documents to the escrow officer quicker.
SEE ALSO: What To Expect When Youre In Escrow
A pre-approval is not a guaranteed commitment from the lender,
since they need to appraise the home you choose before agreeing to loan you the money. It does, however, give you an accurate idea of what theyre willing to lend you and what you can afford based on your finances. Getting a mortgage pre-approval is quick and easy, and will provide you with a useful tool that will save you both time and stress throughout the entire home buying process.