3 Benefits of Loan Mortgage Pre-Approval
Don't start looking for a home until you've been pre-approved for a mortgage.
If you're thinking about buying a home, one of the first things to do is get pre-approved for a mortgage. In fact, it's a good idea to do this even before getting a real estate agent or looking around for properties.
Getting pre-approved means providing your financial details to mortgage lenders and getting a loan offer showing your likely interest rate and the amount you can borrow. Pre-approval isn't an absolute guarantee you will get a loan. But it does mean that you'll likely get one at the agreed-upon terms as long as your financial situation doesn't change and the home you buy is worth enough to serve as collateral.
Although pre-approval can take time and may seem like a hassle, you'll reap these three crucial benefits if you go through the process.
1. You won't waste time looking for homes in the wrong price range
Mortgage pre-approval sets an upper limit on the amount you're allowed to borrow. While you may not want to borrow the maximum amount the bank allows, you definitely can't borrow more than the bank approves you for.
If you don't know what your upper limit is, you could end up wasting a lot of time looking at houses that are too expensive. Not only does this mean you could spend hours on a fruitless quest, but it can also make it more difficult to find a property you love in your price range since you may get your heart set on features that are out of your budget.
2. You're more likely to get an offer accepted
When you find a home you want to buy and submit an offer, the home sellers will typically want you to provide proof of pre-approval. That's because it's in their best interests to make sure you can get approved for the loan needed to go through with the purchase.
Since it takes time to get pre-approval and the market is very competitive, you don't want to find a house you love and then have to start searching for a bank to make you a loan. This could mean missing out on the opportunity to make an offer because you couldn't get your pre-approval letter on time.
Submitting an offer without a pre-approval letter could also lead to the seller declining because they don't have faith you'd be able to get the loan you'd need to buy.
3. It will be faster to close on a home
Once you find the perfect property, chances are good you'll want to move in quickly. And since it can take a long time to get approved for a mortgage and go through the closing process, you could find your timeline is slowed down if you don't have a pre-approval.
If you've already found a lender and submitted your financial information, you'll only need to go through the final approval process rather than starting from scratch. This can make it faster and easier to complete your purchase. Sellers will appreciate this as well, and a shorter timeline to closing could also help you get approved for a loan.
Pre-approval streamlines the home-buying process, making it faster and increasing the likelihood your offer to buy will be accepted. So there's no reason not to talk to a lender and get pre-approved before you start your property search.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.