While exciting, purchasing a new home can be a stressful experience. One way to reduce that stress is to get pre-approved for a mortgage before you start looking for a home. Pre-approval is similar to the pre-qualification process but gives a homebuyer more credibility while house hunting. Keep reading for the scoop on why buyers with pre-approval status are taken more seriously than those who are pre-qualified.PRE-APPROVED BUYERS
Unlike pre-qualification, which is relatively easy to obtain, pre-approval is a loan commitment from a lending solution. The process to obtain pre-approval is more formal and requires the buyer to submit an application with a lender. At that time, a loan officer will put together a credit package that includes the buyer’s:
The credit package is then submitted to an underwriter who issues the credit approval or denial. Because a buyer has gotten formal approval from a lender, they have an edge in an otherwise competitive housing market.
While getting pre-qualified is better than jumping right into the home buying process, you’re better off getting pre-approved. Here are some of the benefits of obtaining pre-approval status from a lender.
1. You have a clear idea of what you can afford. Since you’ve been approved for a specific loan amount, you already know what your price range is. This will save you time from looking at houses that are outside of your budget and prevent you from falling in love with a home you can’t afford.
2. You can easily decide on a house payment that fits your budget. A lot of lenders tend to approve buyers for more than they’d actually feel comfortable paying. So, while you’re approved for a certain amount, you’re free to decide how big or small of a house payment you desire.
3. Submitting an offer is easier. Once you find a home you love, you can easily submit your pre-approval letter along with your offer. Doing so not only gives your offer more credibility but can help your offer be chosen over offers from less qualified buyers.
4. Pre-Approval can speed up the closing process. Since you’re pre-approved by your lender, the closing process will often move much quicker.
Getting pre-approved can help the home buying process move faster, but it’s important to remember your loan is still contingent on several factors. Before the loan is finalized, the lender will require the home and property to be appraised. They’ll also need to verify important information like your credit before funding the loan. With that in mind, it’s important to wait to put off big purchases until after your loan has been finalized.