Buying a home is never easy. The entire process can take weeks, months or sometimes even years to accomplish. There are many steps along the way and different parties that are involved at different stages of the process.
One of those steps is getting pre-approved for a mortgage or home loan. Unless you can afford to pay for your next property in cash, getting pre-approved for a loan is one of the first things that you should work on once you’ve decided that you want to buy a home.
Here are a few reasons why getting pre-approved for a mortgage loan is so important:
1. You’ll know just how much you can spend.
One of the main reasons for getting pre-approval for a loan is that you know how much money banks, credit unions, or other related financial institutions are willing to lend to you. You’ll have a price range to keep in mind when you’re looking at properties in your area. It can also help you properly budget for the home purchase.
When you know how much a lender is willing to loan, you can start setting aside money for your new home. Set aside a certain dollar amount from your paycheck every week. Start setting goals for yourself and track your progress along the way.
2. You’ll have a leg up on other potential buyers.
Completing this step will give you an advantage over other home buyers in the market. You’ll know what you can spend and what properties can be a good fit.
You’ll be a step ahead of other potential buyers who haven’t been pre-approved for a home loan yet. You may even be able to make an offer on a home before they do.
The seller will take some time to carefully review your offer. They will either reject the offer, approve it or propose a counter-offer. Keep an open mind while you wait for the seller’s response.
Communicate with them openly and honestly when necessary. Even if your initial offer isn’t accepted, you can still negotiate with the seller to come up with a reasonable solution. If that doesn’t happen, you can always move on to the next home on your list.
3. You can narrow your focus.
Knowing what you can spend will help you find the best possible property in your price range. You can narrow your search by types of homes and neighborhoods or city areas. You’ll know just how much you can afford, which is important to know when you start thinking about the amenities that you’d want to have.
Take the time to research properties in your area. Think about the neighborhoods or cities that you’d consider living in. Make a list of all of the amenities that you’d like to have and then see what homes that you’ve found meet your criteria. You may have to give up a few things on your list, but at least you’ll have a realistic view of what’s available.
4. You may generate more interest from home sellers.
Home sellers who know that you’ve already been pre-approved for a mortgage loan may be more likely to work with you. Most sellers would rather have an offer from someone who has their finances in order than from someone who doesn’t.
The last thing a motivated seller wants to do is to accept an offer only to have things fall apart because the buyer either couldn’t afford the property or didn’t have their financing secured.
The seller may ask you for a copy of your pre-approval letter or any other related documents. Be sure to provide them with the requested documentation in a timely manner. Once the seller knows that you’re serious and can actually afford their property, they’re typically far more willing to work with you.
5. It can accelerate the home sale.
The nice thing about pre-approval is that you take some of the worry out of financing. This can be a major hurdle for some people. You can start attending open house showings once you’ve found a few houses that you’re interested in and think about making an offer on a home when you’re ready.
Getting pre-approval can reduce the amount of time that it takes to buy a house. You know how you’re going to pay for the property, so now you can concentrate on finding the right home, making an offer and setting things in motion for the closing process once that offer has been accepted.
Pre-approval isn’t as intimidating as it may seem. Schedule a meeting with a lender and let them know that you want to buy a house. The lender will review your credit history, credit rating and employment history.
They may ask you for copies of pay stubs, credit card statements or documents for any other existing loans that you may have. The lender will then issue a pre-approval letter once they’ve decided that they can lend to you. The letter will have the amount and terms that you’re pre-approved for.
If you don’t get pre-approved right away, don’t get discouraged. The lender will usually tell you why they couldn’t accept your request. It may be a good time to get your finances in order.
If you have credit card balances or other outstanding obligations, it’s a perfect time to pay those balances off or down as much as possible. The better your credit is, the more favorable you’ll look in the lender’s eyes.
Pre-approval often provides peace of mind. Many people worry about how they’re going to pay for their home. Once you’re pre-approved, you’ll be one step closer to knowing your home can be financed.
However, just because a lender is willing to pre-approve you up to a certain dollar amount, it doesn’t necessarily mean that you need to go after a home that’s priced at the maximum amount of what you’re pre-approved for. Find a home that has what you want at a price that’s reasonable for your budget.
Feel free to ask questions when you meet with your lender. Take the meeting seriously, as it could significantly impact your future. Pre-approval gets you one step closer to owning your dream home. You’ll have a place that you’ll be glad to make memories with the people who matter the most to you for many years to come.
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