Most homebuyers miss out on one of the most important steps in the home buying process. In this competitive real estate market, Greg strongly advises that homebuyers arm themselves with a pre-approved mortgage loan before the house hunting begins.
A pre-approved mortgage loan is a lender's actual commitment to lend to the homebuyer, with specifications on the exact loan amount. To get pre-approved, homebuyers need to provide personal financial information, such as income, debts and assets, to an underwriter. After a homebuyer applies for the loan, the lender will most likely approve the application with certain caveats. As the lender is committing to the loan amount and interest rate up front, the homebuyer knows that they have their financing in place before they start shopping for a home.
Advantages of having a pre-approved mortgage loan include:
Establishing an advantage in a competitive market. A pre-approval letter gives the homebuyer an edge in a multi-offer situation. Sellers prefer working with potential buyers that are pre-approved. From the seller's perspective, they do not want to take their home off the market only for the deal to fall through because the purchaser cannot get sufficient financing. An offer with a mortgage pre-approval letter carries far more weight than an offer with only a pre-qualification letter or no letter at all. In fact, sellers often accept offers of lower dollar amounts from pre-approved buyers over buyers who have not been pre-approved despite higher offers. With pre-approval, the home sellers have a higher confidence level that the deal won't run into any problems.
Finding the best possible type of loan. Working with a mortgage agent before looking at houses gives the homebuyer plenty of time to decide what category of mortgage product works best for his or her financial goals. Once the buyer decides on the kind of loan he or she wants and has been pre-approved for it, the homebuyer can then focus on finding a dream home.
Establishing the price range. Getting pre-approved for a mortgage enables the homebuyer to determine, prior to house hunting, how much money he or she qualifies for, thereby establishing a price range. The real estate sales associate and homebuyer can then focus on looking at appropriate homes.
Seeking comfort with the loan amount: By taking the time to seek pre-approval, the homebuyer can select a comfortable loan amount. In many cases, buyers can qualify for mortgages that are more expensive than what they feel comfortable committing to for the long-term. Buyers often end up acquiring a more expensive home than they want merely because it works on paper. It's important for a buyer to purchase a home that they can own - and not the other way around.