Why Should I Get Pre Approved For a Home Loan?
Preapproval is an invaluable tool to determine how much you can afford. Not only does this give you peace of mind when searching for the ideal home, but it also gives you the assurance to make an offer when something appeals to you.
Though the process may take some time, being pre-approved won’t hurt your credit score in the long run; in fact, it may even improve it!
1. Youll know exactly what you can afford
Preapproving for a home loan is beneficial, as it puts you in an advantageous position when making an offer on property. Not only does this expedite the process, but it can also connect you with knowledgeable individuals if any questions arise along the way.
No matter if you are a first-time buyer or have owned for years, knowing your affordability when purchasing a home is essential. Getting pre-approved will help prevent falling in love with a property that you cannot afford.
Shopping around more carefully with our free mortgage affordability calculator will enable you to exclude houses that are beyond your budget. Know exactly what your monthly payment will be for any given house price with ease!
A pre-approval letter can also be beneficial when negotiating with sellers, as it gives you an edge over other buyers who haven’t been preapproved for a home loan. This demonstrates that you are serious about purchasing your dream home and have secured financing to do so.
The lender will assess your credit report, income and savings to determine how much mortgage you qualify for. This process may take several days as they assess each application individually, and they require a variety of financial documents from you in order to complete it successfully.
With a good credit history, mortgage pre-approval can give you the assurance that you can purchase a home and meet all financial obligations. Lenders want to guarantee that you are an honest borrower who will repay the loan on schedule.
Once approved, you can look forward to a stable fixed interest rate and predictable monthly payments. This makes budgeting for your new home much simpler, as well as providing the opportunity to save up for a down payment.
If you want to be pre-approved for a home loan, it is wise to repair your credit and reduce debt as much as possible. Doing this can increase your chances of approval and even qualify you for a lower interest rate.
2. Youll have a leg up on the competition
When buying a home, there are numerous factors to take into account. From location and must-haves to price – not to mention the mortgage itself – there are plenty of moving pieces that may be confusing for prospective homeowners to manage.
Pre-approval for a home loan is one of the most crucial steps in the process. This lets you know exactly how much you can afford, so that you don’t end up investing in a house that exceeds your means.
Loans come in many different forms, each with its own advantages and drawbacks. You have the option of fixed rate or adjustable rate loans, plus interest-only options that could save you money over time.
Pre-approval is the best way to learn about the features and benefits of a specific loan type, which can be invaluable when making an offer on a home. Furthermore, you’ll gain insight into what kind of interest rates you might encounter for your chosen loan option.
Making the most of your preapproval is to shop around for the best interest rate and loan products. That means visiting multiple lenders within 45 days before purchasing a home so that you can secure competitive rates without damaging your credit score. The biggest challenge will be finding a lender who will take time to understand your individual needs and help determine which loan best fits you.
3. Youll be prepared to make an offer on a home
Once you’ve been preapproved for a mortgage, the next step is to make an offer on a home. This involves calculating how much you can afford to spend and creating an offer letter.
If this is your first time buying a home, you may be feeling nervous about the process. But if you take care of your financials ahead of time, you’ll be prepared to put your best effort into writing an offer on a property.
Before writing an offer on a home, you’ll need to determine how much your monthly mortgage payment will be as well as taxes, insurance, utilities and homeowners association fees. Knowing this information allows for effective budgeting which is an essential first step in the home-buying process.
When applying for a home loan, lenders typically look at your debt-to-income ratio. Ideally, make sure your ratio is at or below 50%.
Another reason to get preapproved for a mortgage is so you can make an offer on a home when you find one you like. By knowing exactly what you can afford, it gives the seller confidence in knowing you’re serious about making the deal.
Once you’ve composed your offer letter, it is time to submit it to the seller or their agent. They will review it and provide a response in regards to your offer.
At this stage, you typically must pay a deposit known as earnest money to cover the purchase price of your home. Be aware that this money may not be refundable if you withdraw from the contract for reasons not covered by contingencies; thus, it’s wise to put down as much as possible in advance.
Your real estate agent can assist in creating the offer, which is a legally binding document that outlines your offer for the home and how much you are willing to put down. It also contains any contingencies included in the contract such as an inspection of the house.
4. Youll be able to lock in your interest rate
One of the key advantages of getting preapproved for a home loan is that it allows you to lock in an interest rate. A competitive rate can save you thousands over the course of your mortgage, and even small changes like fractional percentage points can have significant effects on your monthly payments.
However, it’s essential to understand that when you lock in an interest rate, that rate remains fixed for the entirety of your contract. If there are any changes made during that time to either your mortgage application or credit report, your lender may increase your rate and you would be held liable for any increased expenses incurred.
If you want to take advantage of lower interest rates, be sure to ask about a “float-down” provision before locking in your rate. This option allows for the reduction of your rate if interest rates decrease during the lock-in agreement; however, there are certain restrictions and costs involved with this decision.
First and foremost, you must have a valid reason for wanting to reduce your rate. This could be as straightforward as wanting to save some money on your mortgage by taking advantage of current low rates.
Second, ensure you have enough time to finish your mortgage application without impacting the locked-in rate. Typically, this period lasts no longer than 30 days but can vary.
Third, you must have a written contract that details the duration of your rate lock. This safeguards you against potential interest rate increases due to market conditions that could alter rapidly.
Locking in an interest rate is essential in the home-buying process as it protects you from increases while you search for a home and while waiting for your loan to close. It also gives peace of mind when making offers on houses or negotiating with sellers; plus, it gives you an edge over competition by showing sellers that you’re serious about purchasing a property.
