Why Get Pre-Approved Before Looking for a New Home

Would you shop for the biggest purchase of your life without knowing how much you could spend? One of the smartest decisions you can make is to get pre-approved before looking for a new home. Having a pre-approved mortgage means knowing how much you can spend, being in a better negotiating position, closing more quickly, and reducing your stress level.

Pre-Qualified Versus Pre-Approved

First, you must understand that whether you are pre-qualified or pre-approved for a mortgage loan will have a dramatic impact on your house-hunting plan.

Pre-qualification is only an estimate of how much house you might be able to afford and is not binding. Pre-approval, on the other hand, involves an in-depth review of your finances. The lender will require an official application and will check your credit history, income, debts, and assets. If accepted, you will receive a conditional commitment with the maximum loan amount, monthly payments, and approximate interest rate. You can then place an offer on your new home. As long as you meet any conditions, the bank will lend the pre-approved mortgage amount.

Know How Much Money You Can Spend

As described above, one of the greatest benefits from a pre-approved mortgage is knowing exactly how much you can spend. Think of how awful it would feel to spend months searching for the perfect home, finally discover it, and be told that you cannot afford it. A pre-approved mortgage removes this disappointment by giving you an accurate budget amount upfront. In the end, having a pre-approved mortgage saves both you and your real estate agent from unnecessary work, time, and frustration.

Win the Bidding War and Close Quickly

Another reason to hold a pre-approval letter is to show a seller that you are serious about purchasing a home. Having pre-approved financing can give you an edge when negotiating price or terms. Even better, when faced with a pre-qualified offer from someone and a pre-approved offer from you, the seller will often choose to work with you. Sellers would rather go with a "sure thing" when thousands of dollars and a guaranteed sale are at stake. The fact that you have already submitted most of the lender's required documents means that you can close more quickly than if you were starting the mortgage loan process at this point.

Gain Peace of Mind

Unless this is your first home purchase, you probably understand that not everything in your real estate transaction will be perfect. You may look in multiple neighborhoods and price ranges but never find a home you like. Your dream home may be snatched off the market by a quicker buyer. Whatever the case, a pre-approved mortgage can reduce your stress during this hectic time. When nothing else seems to be going right, you can take comfort in knowing exactly how much you can spend, what your monthly payments will be, and that a lender is already willing to grant a mortgage loan and work with you when it seems no one else is.