Homebuyers need to be as prepared as possible in today’s housing market. Competition is tight and this is a way to show sellers that you are a serious buyer. It could also give you negotiating power since your funding is in place and you are ready to move forward with the loan process. Closing could also be quicker since a good majority of your information is already collected and with the lender.
Read on to find out more about the pre-approval process and why it gives you an advantage.
1. What is a preapproval and how it is different from getting prequalified for a mortgage loan?
A pre-approval is a conditional commitment to give borrowers a mortgage. It is much more involved than getting pre-qualified. To receive a pre-approval borrowers go through the steps of completing a mortgage application. In addition, they supply the lender with necessary documentation to perform an extensive credit and financial background check. The lender will then offer a pre-approval up to a specified amount. A pre-approval puts borrowers at an advantage when dealing with a seller because they have gone through a more in-depth process towards the loan process, and it reflects credit-worthiness.
A pre-qualification is simply the borrower submitting an overall financial summary based on assets, debt and income. There are no credit checks with a pre-qualification or determination of a borrower’s ability to repay the loan. This is why many sellers feel more confident in a pre-approval letter vs a pre-qualification letter.
2. Why is it crucial for homebuyers to get preapproved for a mortgage?
A pre-approval gives a borrower an amount they know they can afford so they can find a home at or below that price level. As well, going through the steps of pre-approval speeds up the buying and loan process. Sellers take buyers with pre-approval letters more seriously and could help edge out the competition. It is always recommended to get a pre-approval, but can be especially helpful in competitive housing markets.
3. Are there any disadvantages to getting preapproved early in the process or at any time?
No. Pre-approval is a very responsible first step in the loan process. It gives borrowers an accurate picture of what they can afford. This prevents them from trying to buy a home they can’t afford and possibly wouldn’t qualify to purchase. As well, the advice they receive from a lender upfront can help them avoid closing delays and make the loan process more efficient.
4. What are the steps involved with getting a mortgage preapproval?
Step 1: Call a lender and complete a home loan application.
Step 2: Document your income and assets. The lender will tell you exactly what these documents are including W-2s, tax returns, bank account statements, and any other necessary documentation.
Step 3: Pre-approval process. Everything submitted is verified and credit checks take place. Once that is complete, the borrower receives a letter stating what they are eligible to receive.
5. What are the risks of not getting preapproved as early as possible in your homebuying process?
By not having a pre-approval letter a seller might not take your offer seriously. Some sellers and Realtors consider buyers with pre-approval letters to be more low-risk then those without it. As well, after being pre-approved, buyers know their credit has been checked, what they can afford, and they can go forward shopping for homes and making offers with confidence. In a competitive market a pre-approval letter is key!
THE BOTTOM LINE
Talk to Angel Oak before shopping for a home and making offers. It can make a huge difference in your offer taken seriously. Often times we see buyers find the home of their dreams and then have to tell them they don’t qualify for that home amount. Going through the pre-approval process is peace of mind and confidence in moving forward with one the biggest investments you will make – homeownership! That conversation with one of our licensed mortgage advisors provides valuable information and jump starts the loan process. We are here to help and advise on exactly what a homebuyer needs to do for homebuying success.