A Lowdown on Pre Approval

When you walk around the mall and see a nice shirt, a pair of shoes that you like - even that big screen TV or a piece of big ticket furniture that you know would look perfect in that corner of your apartment - isn't it nice to know first hand that you can ACTUALLY BUY that exact shirt or pair of shoes or TV? That all you need to do is say, I want to buy that please. 

Everyone likes to look, browse, and point, it's an enjoyable thing to do. Further, knowing that YOU CAN gives you a bigger feeling of ease and empowerment. Now, can you actually do that for a purchase as big as a house? Yes. It's called PRE-APPROVAL.

Why Pre Approval is a Big Deal (Pre-Qualification vs. Pre-Approval)

A mortgage pre-qualification is a useful estimate of how much you can afford to spend in terms of buying a home, while a pre-approval is a lot more valuable because this means your lender has actually checked your credit AND verified your documentation to approve a SPECIFIC loan amount (usually for a particular time period such as 90 days). In short, you will know that there is an exact working budget and where your boundaries lie. So you can rest easy and not be afraid to check out that beautiful rambler you found online. Final loan approval occurs when you have an appraisal done and the loan is applied to the house you've chosen.

Getting pre-approved for a mortgage is one way to show how serious you are about buying your dream home before starting your search. One of the things that many people need to understand is that in a lot of markets across the country, the amount of buyers searching for their dream homes greatly outnumbers the amount of homes for sale. This has led to a very stiff competition where buyers often need to stand out. It's not unlike being prepared for a job interview and you have competition for your dream job breathing down your neck. How can you make sure you stand out? By being ahead and being prepared when all the others are merely... looking.


It isn't Only for the Benefit of the Other Guy

Getting that pre-approval isn't only to SHOW that you are ready. Even if you are looking in an area of the country where the market is not as competitive, knowing your budget and being aware of what you can do will give you the confidence of knowing if your dream home is within your reach. Freddie Mac lays out the advantages of pre-approval in the My Home section of their website:

"It's highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets."

Why Working with a Professional is an Advantage

One of the many benefits of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Their knowledge and experience will help answer your questions, quiet your fears or misgivings, AND point you towards selecting a lender who, in turn, can help you out with the next steps in you pre-approval process. From there it's about filling out a loan application and providing important information regarding "your credit, debt, work history, down payment and residential history." 

Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage. Getting pre-approved is one of many steps that will show home sellers that you are serious about buying AND often, it helps speed up the process once your offer has been accepted. At the end of it, getting pre-qualified gives you that much needed gain over the other people who are also eyeing YOUR dream home.

 If you think you are ready to buy and you have questions, come talk to us. We know we can help, we have people we know you can trust to help and after our chat, you may be pleasantly surprised at what you can actually do. Our doors are open for you.

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