What is a mortgage pre-approval?
In a nutshell, a mortgage pre-approval is written assurance from a lender or broker that you’re able to borrow money to purchase a home up to a certain amount. It’s based on the income, employment and asset documentation you supply at the time of application, in conjunction with your credit history. So let’s look at reasons you should get pre-approved.
- It carries more weight than a “pre-qualification”.
A pre-approval differs from a pre-qualification. With the former, the lender has actually checked your credit and verified your documentation to approve a specific loan amount (usually for a particular time period such as 30, 60 or 90 days). A pre-qualification can be useful as an estimate of how much you can afford to spend on your home, but it’s a less accurate indicator of your ability to purchase. A pre-approval always carries more weight.
- You’ll know how much house you can afford.
Getting pre-approved before you begin house hunting allows you to know how much house you can realistically afford. Knowing this narrows down the options and makes the selection process more efficient. Not to mention, it protects you from the unpleasant surprise of realizing the home you fell in love with doesn’t fit your budget.
- It adds clout to your offer.
In the Salt Lake housing market, at this time there is a shortage of inventory in properties priced below $450,000, and often we are experiencing multiple offers of homes. Although, not as common in the higher price ranges, on well priced homes, it is also possible to have two or more competitive offers. When the sellers are weighing one offer against another, they will most likely work with the offer that is accompanied by a pre-approval letter. That’s because pre-approvals instill confidence that the buyer is financially capable of purchasing their home.
- It could increase your negotiating power.
In addition to strengthening your offer when compared to buyers who haven’t taken this step, getting pre-approved may give you a better opportunity to negotiate the price or the terms. If the homeowner is eager to sell, they may be more willing to accept a lower offer from someone they’ve been assured is financially capable of purchasing their home.
- It saves time.
Obtaining a mortgage is a lengthy process. Getting pre-approved ahead of time shortens the time between the contract acceptance date and the closing date — this way you’re ready to proceed with finalizing the mortgage once you’ve found the home you want to purchase.