When buying a home at any stage of life, it’s crucial to know how much you can spend. Creating a budget for the homebuying process is important, but you may not get far until you know what type and size of loan you will receive. Pre-approval gives you what you need to dive into the process with confidence.
What is a pre-approved home loan?
Pre-approval lets you know ahead of time how much you can borrow to buy a home. Lenders determine this by looking at your income, credit score, and assets. When you’re pre-approved, you will know what kinds of loans you qualify for, their interest rates, and how much you can borrow. You’ll receive a pre-approval letter. Depending on the lender, this letter will detail an offer that is good for anywhere from 30 to 90 days. When it expires, you’ll have to reapply with updated paperwork. If you’re concerned that qualifying for a home loan may be difficult for you, however, you might want to try to get pre-approved six months to a year before you plan to buy. This allows you time to repair your credit and improve your score as well as save for a down payment.
Pre-approval should not be confused with pre-qualification. With a pre-qualification, you provide most of the same information—finances, debt, income—and the lender gives you an estimated loan amount. However, the lender does not pull your credit score or verify your assets. Pre-qualification is a starting point, but it doesn’t hold weight when you present an offer.
Advantages of Mortgage Pre-approval
Getting pre-approved before looking for a home gives you confidence as a buyer, but it also ensures the seller that you’re serious and have the funding to buy. Often, sellers won’t waste time on potential buyers that haven’t been approved. By getting pre-approved, you present yourself as a low-risk buyer, which instantly comforts sellers.
Make Confident Offers
Once you’re pre-approved, you can walk into home-buying with confidence. When you don’t have to guess about what you can afford, you can make offers knowing that you can make the monthly payments. Knowing what’s in and out of your budget completely changes the home-buying experience.
The bottom line is that sellers and real estate agents love to see pre-approved buyers. Many times, buyers who aren’t pre-approved won’t be allowed to see a home. In today’s market, you want to be able to jump on a home quickly, which means your best choice is to get the pre-approval process out of the way.
How to Get Pre-Approved
Your first step to getting pre-approved is to fill out a mortgage application. This will require information such as employment, social security numbers, income and household expenses, and assets and liabilities. Different lenders have different timelines and stipulations, so contact your lender for specific details.
Once your application is complete and submitted, you will receive a three-page loan estimate within three business days. This document will tell you if you’ve been pre-approved. It will show what the lender expects to offer if you move forward, but it is not a final approval or contract.
Getting pre-approved for your mortgage is an important step towards buying the home of your dreams. For more tips about buying or selling a home, visit the Simply Better Realty Blog!