House hunting is possibly the most enjoyable part of the home buying process. But before you get caught up in all the excitement, first things first. In this case, it’s getting your loan pre-approved. Mortgage pre-approval is an evaluation that establishes whether or not you qualify for a loan.
The difference between pre-qualification and pre-approval
Getting pre-qualified for a loan is not the same as getting pre-approved for one. To pre-qualify for a mortgage, you’ll need to speak with a lender and disclose information about your income, assets, and liabilities.
The lender will then make a rough estimate of how much you can borrow. The process is quick and informal, and may even be done over the phone or internet.
Pre-approval is a more thorough process in which the lender scrutinizes your credit and validates your financial and employment background. You’ll need to present information and sufficient documentation. The lender will confirm your capacity to pay off a loan and provide a specific amount for a certain period, usually 90 days.
As such, pre-qualification doesn’t hold as much weight as pre-approval, and is less likely to get sellers’ attention.
Why you should get pre-approved
- You get to manage your expectations
Getting pre-approved before going to open houses will help you manage your expectations from the get-go. There’s nothing more frustrating than seeing your dream home, only to find out later on that you don’t have the means to purchase it. Likewise, you might be looking below your price range and not finding the best home you can buy.
Knowing how much home you can afford will help you paint a more realistic picture of the kind of property you should consider getting.
- You can nip problems in the bud
The pre-approval process can bring credit report errors to light. Take it as an opportunity to spot unexpected red flags so yu can do something about them. It also brings issues into sharper focus, like the amount of debt you have in relation to your current income. Being aware of these problems during pre-approval gives you enough time to fine-tune your finances before shopping for loans and increases your chances of securing financing.
- You can streamline your house hunting
Finding the right home is faster and easier once you get pre-approved. You’ll be able to sort homes by price and identify which neighborhoods suit your lifestyle. You’ll also be able to decide which open houses to go to. You won’t have to waste time and energy looking at properties that may or may not be within your price range.
- You allow your Realtor to look for your perfect home
Realtors will appreciate working with you if you’ve been pre-approved because there’s a greater chance that you’ll follow through with the deal. Because they know what you’re looking for and what you can afford, Realtors will be able to do a better job of suggesting property types, home sizes, neighborhoods, and so on.
- You’re more likely to be taken seriously by sellers
Sellers are more likely to accept offers from buyers who’ve been pre-approved because they seem more serious about making a home purchase and can be trusted to sign a check. Pre-approval also puts you in a better position to haggle. Sellers are more likely to make concessions, such as lowering the asking price, adding furniture and appliances in the purchase, and covering closing costs when dealing with a pre-approved buyer.
Getting ready to buy a new home? Call Scott Haubrich at (612) 298-5400 or send an email to scott(at)buyrentsell(dotted)com.