The mortgage pre-approval process is one that can greatly improve the likelihood of a smooth purchase process.
Benefits of getting a Pre-Approval:
· Hold a great interest rate for 120 days
· Make sure you qualify for a mortgage
· Know your maximum purchase price
· Avoid costly delays
· Shop for a home with confidence!
Often times people get caught up in the excitement of purchasing a home that they forget to determine what they qualify for. Qualifying for a mortgage is an easy and essential step to ensure that you are looking in the right direction. Over extending your finances will leave you mortgage poor and unable to accommodate life’s unforeseen expenses.
The Importance of Being Pre-Approved
There are a few important things to know about getting Pre-approved for a Mortgage and why they can be a benefit to you. Here’s what you need to know:
Pre-approvals may be an essential step in the home buying process.
Most Realtors like to see that you are pre-approved so they can show you houses in your price range. It also shows that you are serious about purchasing a home, which can be critical in the hot housing market that we have been experiencing.
Pre-approvals can guarantee you an interest rate…for a while.
Most pre-approvals include “rate holds”. That is, if pre-approved, you can look for a home with confidence knowing that your interest rate will not go higher than the rate offered to you at pre-approval. Typical rate holds are 120 days.
Pre-approvals are better than being “pre-qualified.”
In our experience, most banks that “pre-qualify” mortgage borrowers ask the following questions:
- How much do you make?
- How much do you owe?
The problem with those questions is there is no level of detail, and often people who have been “pre-qualified” find out after the fact that they’re not fully prepared to purchase a home. Unfortunately for them, they have invested time in finding a property – only to be disappointed. A full pre-approval process will ask those questions, along with more detailed questions about how you make your living, how long you’ve been making it, your plans for the future, your credit history, your ability to pay existing debts, and many more to give you, the borrower, a much more accurate depiction of your likelihood of being approved for a mortgage.
Other things to know about a mortgage pre-approval:
Pre-approvals are not a guarantee of financing!
This is important to know because sometimes banks and brokers can give you that impression. The truth is, the pre-approval process gives you and your broker a rough idea of what you will qualify for, and should identify any barriers to being approved for a mortgage like damaged credit, unverifiable income, or too much debt. A mortgage pre-approval can’t guarantee financing, but it gives you a much better idea if you will be approved. This is the main reason that we always recommend our clients make an offer to purchase a home conditional on financing.
Pre-approvals, like regular approvals, are subject to certain terms and conditions.
These conditions usually include things like verification of income, verification of down payment, acceptable property type and location (which can’t be determined until you actually make an offer).