Get Pre-Approved For A Mortgage
Many sellers want to know that you can really afford the home before they will take your offer seriously. You can go through the application process for a mortgage and have financing in place before you even start looking.
Here are four important advantages you gain by getting pre-approved:
1. A pre-approval certificate is more reliable than a pre-qualification certificate. Getting a pre-qualification letter is easy. You just call a mortgage broker or go on-line, provide some basic financial information, then wait a moment to generate your “pre-qualified mortgage”. A pre-approval certificate, on the other hand, involves more information such as checking your credit. Granted, a pre-approval is more time-consuming than a pre-qualification but the additional due diligence is exactly why the pre-approval carries more weight.
2. You’ll know how much money you can qualify to borrow. Most home buyers have a rough idea of how much they would feel comfortable paying every month on their mortgage. However, there’s no quick-and-dirty way to translate that monthly payment into a specific maximum mortgage amount because other factors — down payment percentage, mortgage insurance, property taxes, adjustable interest rates and so on — are part of the calculation. And, you might not be qualified to borrow as much as you think you should be able to borrow, depending on your income, your debts and your credit history. Or, you may qualify for more than you thought possible.
3. You’ll have more leverage in negotiations with the seller. Sellers often prefer to negotiate with pre-approved buyers because the sellers know such buyers are financially qualified to obtain the financing they need to close the transaction. A pre-approval certificate is an especially favorable point in a close multiple offer situation. And, you might feel more confident about making an offer with a pre-approval certificate in hand and the knowledge that you’ll be able to obtain a mortgage.
4. Your real estate agent will work harder on your behalf. A pre-approval certificate signals to your real estate agent that you’re a well-qualified buyer who is serious about purchasing a home. The increased likelihood of a closed sale — and a commission — will naturally motivate your agent to devote more time and energy to you. In fact, some agents won’t even show property to buyers who don’t have a pre-approval certificate.
A few caveats: Pre-approval certificates aren’t binding on the lender, can be subject to an appraisal of the home you want to purchase and are time-sensitive. If your financial situation changes (e.g., you lose your job, lease a car or run up credit-card bills), interest rates rise or a specified expiration date passes, the lender will review your situation and recalculate your maximum mortgage amount accordingly.