If you’re getting serious about buying a house, one of the best things you can do is get preapproval for a home loan.
Without a preapproved mortgage, you could run into trouble when you do find your dream home. Even if you think you’re a shoo-in for a mortgage, it helps to be sure by getting a preapproval.
Mortgage prequalification vs. preapproval
Before you start, it’s important to understand the difference between mortgage prequalification and preapproval for a home loan.
A prequalification doesn’t usually involve a credit check. Instead, the lender relies on the information you provide about your income, credit, and expenses. You tell the loan officer or mortgage broker your details and they offer an estimate of how much you might be able to borrow and at what rate.
After I was preapproved for my own mortgage, I realized that my prequalification was about $15,000 higher than my preapproval amount. This was because I was a lousy judge of my credit score, assets, and debt.
A preapproved mortgage is one that relies on a more vigorous method of checking your financial information. Before you’re preapproved, the lender checks your credit and you bring in documentation verifying your income.
Your preapproval is a guarantee of what the lender will front you. Plus, you can often lock in an interest rate when you get preapproved. This can be helpful as you shop around for the best mortgage rates.
4 reasons to get preapproval for a home loan
Don’t settle for a prequalification. Here are a few good reasons to get preapproval for a home loan:
1. You know how much you can borrow
There’s no guessing with a preapproved mortgage. You know exactly how much you can borrow.
As you look for homes, you can eliminate those out of your price range. When you’re preapproved, you don’t have to waste your time looking at homes you know you won’t get the money for.
2. Sellers know you’re serious
Many sellers won’t open negotiations with you unless you’re preapproved. Sellers and their real estate agents don’t want to waste time on a buyer that isn’t a serious contender. In some cases, if the home has a higher price tag you can’t even look at the home unless you show a preapproval letter.
Before you open negotiations, the other side of the deal wants to know you really can play ball. Your preapproval can open some doors that might otherwise remain shut.
3. You’re able to lock in a lower mortgage rate
Mortgage rates change all the time. The last thing you want to do is start the home-buying process only to have rates jump — costing you more money.
With some lenders, it’s possible to lock in your mortgage rate at the time you get your preapproval. Look for a guarantee that the rate will drop if mortgage rates fall as well.
When I signed the deal for my preapproved mortgage, the paperwork indicated that my mortgage rate wouldn’t rise beyond what we locked in. However, the documents also made it clear that if mortgage rates dropped before closing, I’d get to take advantage of that.
Read the papers carefully and lock in a deal that works well for you.
4. You can move quickly when you find the right house
Perhaps the biggest advantage of getting a preapproved mortgage is the fact you can move quickly when you find the right house. With preapproval for a home loan, you don’t have to wait for the lender to verify your information. It’s already done.
When all you have is a mortgage prequalification, there’s a chance your numbers won’t hold up under stiffer scrutiny. Your deal could fall through, leaving the door open for someone else to swoop in and take your dream home.
But with a preapproved mortgage, all the heavy lifting has been done. Considering preapproval isn’t the only hoop you have to jump through, your home sale will go through more quickly. Your situation has to be re-examined before closing on a deal, but starting with preapproval can put you further ahead with your timeline.
A preapproved mortgage matters
You don’t need a mortgage preapproval to look for homes or even start the home-buying process. However, it can help move things along.
There’s a good chance your real estate agent will want to see a preapproval to make sure there they’re not wasting time looking at homes you can’t buy. Plus, it can provide you with peace of mind to know exactly what you can afford.
While things can change between your preapproval and your closing, having that preapproved mortgage can be a big help as you prepare to buy your dream home.
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