Do yourself a favor: Get pre-approved!
We are always asked, “Can I afford to buy a home at X price?” The bottom line is that this question often carries a sophisticated answer tailored to the financial state of each homebuyer. Other than calling Suze Orman, there is one step that we strongly encourage you to take in order to discover how much you can spend and how to prove it in the marketplace: pre-approval.
The first step of the mortgage process is typically pre-qualification, which is a brief analysis of your financial profile to roughly determine how much you are qualified to spend on a home. Pre-qualification can be done online or over the phone, and typically comes at no cost. Pre-approval the next step in the home buying process, however, is far more robust and carries great significance to the ease and organization of your home buying experience.
We strongly encourage you to engage in the process of pre-approval with a lender for acquiring a home loan, which will help nail down exactly how much you should be looking to spend on a new house and will be a solid piece of evidence that you are ready to place a bid on a seller’s property. The pre-approval process carries numerous advantages, one of the primary advantages being that pre-approval makes you a stronger competitor in the market for buying a house.
In fact, many realtors will refuse to show a house without a pre-approval letter. One of the first questions you will commonly be asked by a realtor after requesting to view a property is “Have you been pre-approved?” The best answer to have prepared for this question is a full-hearted “Yes!” If not, you may run into some trouble trying to view houses, especially in a competitive market.
The first step toward pre-approval is meeting with a lender, who will then review your financial documentation. After the lender has reviewed your financial history, they will produce a document known as a pre-approval letter, which will be your key for narrowing down your budget for purchasing a new home and will be a strong bargaining chip for ensuring sellers that you have the financial backing to go through with the purchase of your desired home. More specifically, this letter will be a verbal commitment from a lender for a specific sum of money they will be willing to lend you once you find a home to purchase.
This is not a step to take during the casual “fantasy shopping” period. For most homebuyers, there are several things that need to be coordinated before entering into the pre-approval process. You will be asked to provide up-to-date information on the following:
- Employment history
- Income statements
- Your credit score
- Identity documentation
Because pre-approval letters are written based on analysis of your most recent financial history, they are approvals tagged with an expiration date. You don’t need to have a specific house in mind before pre-approval, but don’t waste your time and money on a pre-approval if you haven’t honed in on some specifics regarding what you’re serious about purchasing.
The point here is that pre-approval is a huge step in becoming fully prepared to purchase a home and to arming yourself to be a strong contender for placing a bid on your dream home. Simply put: get yourself pre-approved once you are ready to begin seriously house hunting, especially when purchasing in competitive seller’s markets. You will discover much about what’s best for you financially in terms of borrowing, and you will be much closer to a swift closing on your future home.
