After finding the right home, the last thing you want to hear is you don’t qualify for the home of your dreams. In order to avoid such bad news, getting a mortgage pre-approval before you start looking is a must. Realtor.com conducted a survey and found out that many buyers are making the mistake of missing the pre-approval step, the crucial piece in the homebuying process.
What exactly does mortgage pre-approval mean? And why is it so important to be pre-approved? And will it really gain you a competitive advantage in the home buying process? Let’s answer these questions one by one.
What is mortgage pre-approval?
A mortgage pre-approval is the process of determining how much money you can borrow to buy a home. This involves having a lender review your financial health (your income, debt, assets, and credit history) – to determine…
- if you are qualify for a home loan
- how much they are willing to lend to you
- how much you could pay per month
- what your interest rate will be
Think of it as a pre-screening process for home loan applicants, the very first step of the home buying process. Having a pre-approval letter is good news to the seller. It means you can afford the house and that you have started working with a lender already.
Does a pre-approval guarantee a mortgage?
Unfortunately, no. The mortgage pre-approval process doesn’t work that way. It simply gives you a chance of getting a mortgage. Take note that mortgage pre-approval letters from your lender means you’ve been pre-screened. It will give you competitive advantage in the home buying process. Here are just a few of the reasons why your pre-approval letter doesn’t guarantee a loan.
- a change in employment
- a negative item on credit
- taking on additional debt
- changes in loan requirements or lender guidelines
- issues with the bank appraisal
Why is pre-approval important in today’s market?
- A pre-approval accelerates the house buying for you and your real estate agent.
- Getting approved establishes your credibility as a homebuyer and will show sellers that you’re a qualified home buyer.
- It gives you confidence in your search knowing you can afford and the price is within your budget.
- Having one gives you time to sort out any financial issues especially when you have a low credit score.
Many things can happen to you financially after you get mortgage pre-approval. Firstly, mortgage rates can rise or fall. Secondly, your income and credit score can change as well. This is the reason why your pre-approval letter is typically valid between 60 to 90 days and when yours expires, you’ll need to update your paper work and get a new one.
Understanding the purpose of getting a mortgage pre-approval is the key before making any home buying decisions this 2021 because doing so will give you ample time to avoid anything that could negatively impact your financial status. Certainly, there are other steps in the homebuying process and now it’s clear why a getting a pre-approval is always the best place to begin with.
Are you buying your first home?
Let’s connect to make sure pre-approval is one of the first steps you take toward homeownership this year. Begin your 2021 homebuying journey now with ApexPro. We’ll handle all the details from the beginning to end to make your home buying transaction smooth and stress free.
Have you applied for a mortgage pre approval? How did it work out for you? Let us know in the comments below.
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