Sometimes buyers are anxious to look for a home and want to get started right away. However, the first step in the home buying process is getting pre-approved for a loan. Before issuing a pre-approval letter, a lender will check a person's credit, income, debt, and assess their overall financial position. From there, the lender can state that you qualify for a loan up to a certain amount and issue a pre-approval letter. A pre-approval letter is a necessity for the following reasons:
-Strengthens your offer and negotiation position- it is standard practice to submit a pre-approval letter with an offer. If a buyer has not been pre-approved, the seller will probably not take their offer seriously. Some sellers even request pre-approval letters before allowing showings of the home. They do not want to waste time with a buyer who may not be serious.
-Solidifies price range- there is no point in looking at homes that are more than you can afford. You will know exactly what you can afford and also know what to expect as far as closing costs and approximate monthly payment.
-Find credit mistakes early- sometimes there are mistakes on credit reports. Even if someone has always paid their bills on time, you never know what might show up. These mistakes can corrected, but it does take some time. Also, it is good to see your score in advance and ask for advice to increase your credit score. The higher your credit score, the more you will save on interest rates and insurance premiums.
-Saves time and emotional stress- it happens all the time when someone thinks they will qualify for a home loan, but they do not. Maybe their credit was lower than expected, or their income-to-debt ratio won't get them the loan amount they want. It is better to find out right away, rather than after you have committed a lot of time searching for properties. It can be especially devastating if you have already found a home you love. Home buying is a very emotional experience.
As you can see, there are a lot of advantages to getting pre-approved. There is no cost to get pre-approved, and there is no obligation to get a loan through that company. I always recommend loan shopping once you have a house under contract to ensure you are getting a competitive rate and loan fees. It usually takes less time to get pre-approved than it takes to look at one house. When it comes time to buy a home, make sure you are prepared.