Real Estate Agents used to counsel that it would be a good idea to get pre-approved for a mortgage before you even started the house-hunting process, but now it’s not just a good idea, it’s practically essential!
Sure, you could try to make an offer on a house without a mortgage pre-approval, but List With Elizabeth doesn’t recommend it. There are a few reasons why you definitely need to secure a pre-approval before starting your house hunt, especially in the Burke and Springfield area.
A mortgage pre-approval is an offer from a lender indicating the type and amount of a loan for which a buyer can qualify. It is issued only after the lender has evaluated the potential buyer’s financial history, which means studying income, tax returns, debt history, and pulling a credit score.
This is different from a pre-qualification letter. To obtain a pre-qualification, buyers will likely need to show proof of assets and income, good credit, and verification of employment. Pre-qualification gives you an estimate of how much you can afford, but doesn’t act as a similar commitment from a lender, and for that reason, an actual pre-approval carries much more value.
Getting your pre-approval isn’t a fast process; it’s a thorough review that can be intimidating and fairly in-depth. But once you’ve done it, your approval usually lasts for a particular set period, like 60 to 90 days. After that time, a buyer’s debt-to-income ratio and other factors may have changed, so depending on the buyer’s timeline, this document may need to be revisited before closing.
The best part of having a pre-approval done is that it unearths any problems before they can arise in the contract stage. This gives the buyer more peace of mind and the seller greater confidence as well.
In competitive markets like Springfield and Burke, sellers may not even consider your offer without a mortgage pre-approval, unless it’s an all-cash offer, of course. Most sellers these days expect buyers to have a pre-approval letter to reflect their purchasing power, and they are more willing to negotiate with those who can prove that they will be able to obtain financing.
Not only does having a mortgage pre-approval show that you are a serious buyer, but it allows you to move more quickly.
First of all, it really helps you to narrow down the range of home prices you can afford, which will save you time and energy during your search and keep you from falling in love with a home you can’t afford.
Securing a pre-approval in advance will also help you to learn some things it’s better to know before you start shopping and identify any obstacles to approval — like holding too much debt, or having a low credit score — that could keep you from closing on a home you’ve put under contract and having to back out of the deal, which could be costly.
But also, mortgage pre-approvals save time because, to be competitive with your offer, you’ll need to submit it as soon as you’ve found a home you love. Submitting with a pre-approval letter assures you and real estate agents that you can complete the purchase of a home that meets your lender’s guidelines. And since Springfield and Burke are hot markets where inventory is scarce, homes are selling fast and sellers will want complete offers that are most likely to finish smoothly without any issues.
It’s also true that in a multiple offer situation, offers with pre-approvals attached usually — almost always — receive precedence.
Due to historically low interest rates and other factors that make home buying attractive right now, mortgage lenders are exceptionally busy with applications. So if you think you may be soon in the market for a new home, it would be best to start the process as quickly as possible so you can start looking.
Remember that it’s best to view your pre-approval amount as a maximum, an upper bound in price for your home search. No one wants to fall in love with a dream home only to find out they can’t afford it!
Also, keep in mind that you don’t have to commit to the lender from which you received your pre-approval letter. Shop lenders to get the best rates you can. Comparing quotes from several mortgage lenders may actually save you as much as thousands of dollars.