There's plenty of good reasons to get pre-approved for a home loan.
If you are starting the home buying process, there's a key step you need to take even before calling a real estate agent or visiting open houses.
That step involves getting pre-approved for a mortgage.
It can take time to secure pre-approval for a home loan, and you'll need to submit a lot of financial documents to your potential lender. But there are three really important reasons why getting a pre-approval should be one of the first things that you do when you're considering purchasing your own place.
1. Pre-approval allows you to find out your interest rate
When you get a mortgage pre-approval, you have the chance to find out what rate the lender will charge you to borrow, based on your personal finances. This will help you decide if you're able to qualify for a loan at a competitive rate. You can also get a general idea of what your loan will cost you.
In many cases, your lender may agree to a mortgage rate lock, which will allow you to keep your interest rate for a set period of time once you get pre-approved. You may have to pay a small fee to do so, but this can protect you against rising mortgage rates if you think that they may go up between your pre-approval and the time you purchase your home.
2. You can determine how much you'll be able to borrow
Your lender will pre-approve you for a specific amount of money based on a number of factors, including:
Once you know how much you're allowed to borrow, you can make sure you're being realistic about looking for homes within your budget. That way, you can avoid wasting time shopping for a property that's too expensive.
Remember, though, you don't have to borrow the full amount you are pre-approved for. This just sets an upper limit you'll know you need to stick to.
3. Sellers are going to want you to be pre-approved
When you're ready to make an offer on a home, sellers are almost definitely going to want to see a pre-approval letter as part of that offer. That way, they can feel reasonably confident that you will actually be able to get the money if you accept the offer.
Since it's a seller's market and properties are moving quickly, you'll want to make sure you have that pre-approval in place so you don't lose out on a home while you wait to get it. That's especially true since it can take several weeks for the bank to review all of your documentation, determine if you qualify for a mortgage, and get a pre-approval letter ready to go for you.
By getting pre-approved early on, you can make sure your home-buying process goes smoothly. You'll know up front what size mortgage you can take and what it will cost you, and you'll have your documentation ready when you find the perfect home and are ready to submit your offer. It's well worth taking the time to do that at the start of your home search.
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