Getting pre-approved may sound like a hassle and seems like it requires you to have excellent credit scores and a lot of assets when purchasing a house is likely going to be your biggest investment yet. However, getting pre-approved isn’t as involved as it sounds and can offer you benefits worth far more than the hassle it seems to be.
Knowing Your Reach
Though you don’t need to get pre-approved, it is strongly suggested so that you know how much you’re able to afford. The last thing you want is to go into a home, fall in love, and then not have the right mortgage to cover it—or worse, lose it in a multiple-offer situation because your finances weren’t secured. A good pre-approval will factor in your income and your debt. If the bank doesn’t ask about your income and to prove it via pay stubs or invoices, then they may be basing your pre-approval on current rates, which will not accurately reflect what you can afford.
Prepare Your Down Payment
Being able to know what your down payment and closing costs are going to be without having to guess, calculate and estimate is a blessing. This knowledge can help you pad your savings or cut costs in order to comfortably pay the required fees. The associated fees with a home purchase can sideline you if you’re not ready. Consider saving up for legal costs, property transfer, appraisals and other hidden homeownership fees.
You’ll likely get the rate that you’re approved for. This should hold for 90 to 120 days once you have your pre-approval. If rates are going up, you’re set with the rate that you have and won’t be charged extra when you close on the home later. If rates are going downward, you can still be honoured the lower rate. Either way, you get the lowest rating in the market. Just make sure to double check the bank’s policies and guidelines so that you are secured the rates that you want and don’t get a nasty surprise after you purchase your home.
Help Your Agent Negotiate
In a competitive market, your offer may be one of multiple offers that come in on a property. What are the chances that yours is the highest and the one that the owners will choose? In order to negotiate properly and avoid over-reaching on your budget, a pre-approval will give your real estate agent a firm ceiling so they know what to work with. This ceiling is your absolute maximum and can help you give your agent permission and trust to bid on your behalf with your best interests in mind. This is the best shot that you have for getting your offer accepted at a reasonable price, without under- or over-bidding at the start.
Clear Lender Guidelines
Typically, an appraisal of the property is not done in order to secure a pre-approval. Pre-approvals consist of proof of income and current debt levels. However, in certain cases, if the down payment or contract specifies it, the lender may want to do an appraisal of the home you intend to purchase. This gives them a good idea if the property is a sound investment for you and the bank, and is low risk and able to be resold if something unfortunate happens.
Having a pre-approval helps paint an accurate picture of what your monthly mortgage payments are going to look like. This can help you budget for these payments, for your bills and for your savings. Though your mortgage may be outlined, homes typically have surprise costs that you’ll need to cover. The pre-approvals gives you an idea of the taxes and fees associated with your purchase so you won’t have sticker shock.
Easier Property Search
With a pre-approval, you know what your price range is so it becomes incredibly easy to filter out properties that are outside of your budget and gives you a chance to focus on realistic and affordable properties. Though it may not seem like a big deal, the amount of effort that you’ll minimize in house heartbreak is important. People who fall in love with a house outside of their price range can sometimes rebound and purchase a home that they don’t give enough consideration.
Be Taken Seriously
Showing that you’ve done your legwork proves to real estate agents and home sellers that you are serious about purchasing a home and that you are a good person to do business with since you’ve got solid financials. It’ll give you a leg up on the competition if they are not pre-approved, since most homeowners don’t want to take the risk that their buyer won’t pay up in time or at all.
Be Taken Seriously
Getting pre-approved does not cost you anything, since it’s the bank that wants to make sure that you’re a sound investment and have your business. You only need to show up with the required documentation (credit score, proof of income and debt situation) and spend less than a day of your time to get pre-approved. The best part is that getting pre-approval doesn’t actually commit you to anything yet. It just gives you an idea of where you stand and what you can accomplish in your financial situation.
There are a ton of benefits to getting pre-approval for a mortgage, which outweighs any hesitation you may have about getting it. You can shop around at different banks and lenders for the best rate, have it secured, present yourself as a serious and viable option and have a good picture of what kind of home you can afford. There is no real downside to getting pre-approval; though you want to make sure your credit score is as high as possible and aim to pay down your debt before getting pre-approved since these factors can make the rate you’re offered higher as you’re seen as more of a risk.