If you’ve decided to buy a home, congratulations! It’s an exciting time and often home buyers immediately turn to the internet and start searching for properties. However, in this current real estate market with a lack of homes available for sale, it’s critical to get preapproved for a mortgage first before house hunting. Without actual numbers in hand, you could end up falling in love with a home that is out of reach.
When you run your actual financial numbers and figures with a mortgage professional, you will have a clear idea of what will fit into your budget. This can make the process easier and faster because you’ll be able to focus your sights on properties that fit your budget and taste. Buying a home is stressful enough, so if you buy within your means, then buying a new home will be an exciting and stress-free experience.
Let’s dig deeper into the pre-approval process and learn why this step is so important.
The Golden Rule: Get preapproved for a mortgage first, then go house hunting
When you’re looking for a new place to call home, there are often so many great options that it’s hard not to be tempted to continuously scroll through online listings and ads. It’s easy (and totally normal) to start a list of your favorite properties on online sites, and most homebuyers do this. But before adding any property to your wish list, you should first get preapproved for a mortgage.
The application process to get preapproved for a mortgage is an important step in finding the perfect home. This process is similar to the actual application, but this preliminary look will tell you whether or not you qualify and how much home you can afford before selecting the actual property.
What is a Mortgage Pre-approval?
To get a pre-approval, you must first submit a variety of financial documents and authorize your loan officer to run your credit report. Your complete financial picture is an essential component in determining whether you qualify for a mortgage, as well as which loan programs are best suited to meet your needs. An underwriting team will review your information and determine whether you meet their lending guidelines, and they are legally required to justify their decision. Most lenders want to approve your loan since this is how they make money in their business, but nothing good can come from approving a borrower for something they cannot afford.
If you qualify, they will issue a pre-approval letter stating the approximate payment and loan amount that you qualify for along with any other conditions you must meet to complete the application process. This Pre-approval letter is a signal to sellers that you are not only serious about moving forward but also that there is a good chance that the deal won’t fall through.
Once you find a home and have an accepted offer, you will have to submit updated financial documents and your loan will be processed with the specifics of the property, including an appraisal and title search.
TIP: In this highly competitive market, most real estate agents require a pre-approval letter before scheduling a showing.
Pre-approval Basics
In many cases, you can get a pre-approval letter within one to three business days, but for more complicated situations, it could take longer. Depending on how fast you need to move, plan accordingly and start gathering your financial documents ahead of time to make the process go smoothly. There’s also a time limit on them – normally they expire in 60-90 days. So, if it takes longer to find a home you may have to give your lender updated documents.
It’s also important to understand that a prequalification is not the same as a pre-approval, although they are often confused. A prequalification is an estimate based on data you submit to the lender without submitting supporting documents or running a credit report. A pre-approval is based on actual factual data and documentation including pay stubs, tax returns, bank statements, and your credit report. If most real estate agents won’t even show you a home without a Pre-approval letter, they very likely won’t consider a prequalification letter.
Pre-approval is not a 100% guarantee, many things can change throughout the process. But it does signify a conditional agreement and shows the seller and their agent that it’s highly likely you can complete the buying process.
Take the first step
If you’re ready to buy a home, it’s critical to start with getting pre-approved for a mortgage. In our current sellers’ market, it’s even more important to have a pre-approval in place not only to show that you are serious about buying, but also because many real estate agents require it before showing a home. Having a pre-approval will give you peace of mind on what you can afford within your budget as well as the price range you should be looking in, so you can save time and avoid falling in love with a home that is out of reach. Whether you’ve already started house hunting or not, reach out to me today! I’ll walk you through the process and make it easy and stress-free.
*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.