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 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 https://paydayloansnj.org/ 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.