It is very important to note that walking into your bank and them telling you what they think you can afford is not a pre-approval. To be pre-approved, you will have to provide supporting documents, a credit check and an official document from the lender.
1. 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.
2. It saves time: Since your lender has to do work in advance, including a credit check and confirmation of income to determine borrowing qualification, time is saved when you find the home you want to buy. As long as you don’t make any drastic changes to your financial situation before escrow is opened, things can move ahead much faster. The lender has already agreed to finance your home purchase. Now, it’s just a matter of gathering up the information for any additional data the lender requires and having the home appraised.
3. Negotiation Advantages: Being pre-approved for a mortgage lets homeowners know that you are serious about buying a home and demonstrates you have the ability to perform. This gives the buyer the advantage of strength in negotiations. Owners may be debating between your offer and a higher offer from a buyer who hasn’t been pre-approved. Your status just might motivate them to be a little more flexible with your terms.
4. Lending requirements are changing daily: You may have a pre-approval that will no longer apply due to the new regulations, and there are many of them! You might have qualified for $500,000 a few months ago, where today you could only qualify for $420,000.
5. Pre-approval vs Pre-qualification: These are two very different routes. The pre-approval is a far more valuable process as it usually requires documents, verification and a credit check to support the application. Pre-qualification is more of a prediction on the amount you may borrow. This is not the recommended approach as you might not know your exact income, debts, and taxes, and the supporting documentation will not match up.