Why You Should Get a Pre-Approval Before You Go House Hunting!Deciding to buy your first home is equal parts exciting and terrifying. Not only is it likely the most expensive purchase you’ve
Why You Should Get a Pre-Approval Before You Go House Hunting!
Dated: April 20 2022
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Why You Should Get a Pre-Approval Before You Go House Hunting!
Deciding to buy your first home is equal parts exciting and terrifying. Not only is it likely the most expensive purchase you’ve ever made, but it’s also a complicated process. Getting your finances in order before you start looking is a critical step, and getting a pre-approval letter from the bank is one way to know you are ready to start looking.
What is Pre-Approval?
Pre-qualification and pre-approval are two terms that you may have heard - while both can tell you how much house you can afford, there are some key differences.
A pre-qualification is an estimate of the mortgage you could qualify for based on your reported income, assets, expenses, and liabilities. It may require a visit to the bank but can often be done online. A pre-qualification does not contain any commitment by a lender that you’ll actually be able to get a mortgage because your information is not verified. However, it is a good idea to get one if you are just getting started and don’t yet know how much you might be able to afford.
During the pre-approval process, on the other hand, the bank or mortgage lender will ask for verified proof of your financials. This proof could include payslips, loan statements, valuations of assets, and bank statements that show your regular payments. Based on the information you provide, an underwriter will determine how much money the bank would be willing to lend you to purchase a home.
A pre-approval is a commitment from the bank that they will give you a mortgage. This commitment is usually only contingent on two things: Firstly, that nothing changes in your financial situation before closing on a property, and, secondly, that the property you purchase appraises for at least the amount you have offered to pay for it.
Advantages of Having a Pre-Approval in Hand
It shows that you’re serious. Having a pre-approval shows sellers and real estate agents that you are ready to make an offer for the right house. You’re no longer “just looking.”
It shows that you are likely to qualify for a mortgage. Even though a pre-approval is not a 100% guarantee that you’ll get a mortgage, it shows a high degree of likelihood. With a pre-approval letter in your hand, you can walk into any property knowing what you can afford and that you can make an offer with confidence.
It will help your offer stand out. We are in the middle of a sellers’ market in Colorado, and there are often multiple offers on properties. A pre-approval from a bank puts you in a competitive position against even cash buyers, whereas a pre-qualification letter, or not having anything, will likely put you at the back of the pack.
It will get you to the closing table quicker. Having gone through a pre-approval process, the lender will already have the key documents necessary for your mortgage application. And even if you need to provide updated documents, you’ll know what they are and have them ready. The final mortgage offer should be a formality.
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