5 Reasons You Need to Get Preapproved
Are you in the market to buy your first home and are unsure of the home buying process? Here are 5 reasons you need to get preapproved for a home loan today: knowing your budget; increasing your negotiating power; gain confidence in the home buying process; secure the deal on your new home; move into your new home.
The local Asheville and Buncombe County market is quite competitive; there aren’t enough listings on the market and the average days on market is anywhere from 42 – 52 days for homes priced under $250,000. If you’re a first-time homebuyer, you have to be able to act fast and make an offer on a home that fits your wants & needs as soon as you find one! Home buying has become so competitive that buyers are even going so far as to write love letters and create elaborate presentations & videos to explain to the Seller, who they are & what buying their home means to them. However, going through the preapproval process with a mortgage lender, before you start viewing properties, will actually give you a much better edge over other buyers in the market that just have a prequalification letter. It can mean the difference between scheduling a date to move into your first home or scheduling your next rental payment.
In a Mongolian Properties article, “Top 7 Things First Time Buyers Need to Know”, buyers should contact their bank or a creditable lender for “a mortgage in principle, which is what the bank expects to be able to lend you, before even looking for houses. Before buying the home, get a preapproved mortgage to accurately estimate how much you might be paying.”
What’s the Difference Between Prequalification & Preapproval?
Prequalification is a quick process that can even be done online, that simply gives you an idea of what your price range might be when starting to search for homes. Your lender will provide you with a prequalification letter, which should be on their letterhead and it should state that you’re prequalified up to a certain amount. However, you will still need to go through the entire mortgage application process once you’ve made an offer on a home.
Preapproval is when a lender reviews your financial documents including assets and debts, pulls and reviews your credit reports to determine if you’re able to qualify for a specific loan amount. An official mortgage application is filled out in order to initiate the preapproval process. Copies of financial documents, W-2’s, bank statements and more will need to be provided. Preapprovals are good for approximately 60-90 days, so be mindful about what your timeframe is to purchase a property.
Your lender will provide you with a preapproval letter, which when submitted with your offer, will prove that you’re a qualified, serious buyer.
Will Preapproval Hurt My Credit Score?
The short answer is No. In a Bankrate article, “10 must-do’s for the first-time homebuyer”, buyers who are “applying with multiple lenders in the same month increase your chances of getting a loan approved at the best rate possible without dinging your credit score too much”.
Your credit score can drop a few points when there are multiple inquiries coming in around the same time. However, the credit bureaus have instituted measures to avoid reflecting these inquiries on credit reports. If you’re shopping around for the best rate, and several mortgage companies make credit inquiries about you within 45 days of each other, all of those inquiries will be bundled into a single event which will have a smaller impact on your score.
How Much Will My Credit Score Be Affected?
In an article titled – “Don’t let Mortgage Pre-approvals Sink Your Credit Score”, “The cost to your credit can be as little as a few points or up to 14 or more, depending on your credit history and the number of other loans or credit accounts you’ve applied for in the past 90 days.”. If you monitor your credit score and know that it’s great, you shouldn’t worry about it dropping a few points. However, if you have no idea what your score is or you’ve been working on repairing your credit, you should be cautious when shopping around for a loan. You should be aware that it could drop you from a good to fair credit score range.
5 Reasons to Get Preapproved
- Know your Budget – You’ll know exactly how much house you’re approved to buy. However, you should make a personal decision to determine if you want to buy a house up to the maximum loan amount or not. What are you comfortable paying each month?
- Increase Your Negotiating Power – With a preapproval, you can confidently search for homes and make an offer on one that meets your wants & needs. Include the preapproval letter with your offer to the Listing Agent and the Seller will have one less thing to worry about when they accept. They won’t have to question if the deal will fall apart due to the loan approval process and they’ll have a tentative closing date so that they can start arranging moving plans.
- Gain Confidence in the Home Buying Process – Going into the home buying process with the knowledge that you’re already approved for a loan, is a massive stress reliever. You won’t have the added last minute stress of finding a home & making an offer, only to find out that you’re not approved for the mortgage. Arrange to look at homes with your agent that you know you can afford.
- Secure the Deal on Your New Home – Getting preapproved and making an offer that’s accepted will start you on the path to homeownership. You’ll navigate through the due diligence process, where you’ll arrange for inspections of the home and possible negotiations to repair any issues or reductions in price and then you’re onto closing.
- Move Into Your New Home – With a preapproval, house hunting and the offer to purchase, your move into your new home could be much faster than if you started the process having only a prequalification letter. Your offer on a home most likely would be accepted faster in this very competitive Seller’s market.