Being a first-time home buyer is exhilarating and exhausting at the same time. You probably had no idea how much energy and paperwork would be involved when you decided it was time to become a homeowner.
Many first-time buyers make the mistake of putting off the loan process until well after the home search is already underway. In reality, you should do the exact opposite. Beginning your path to homeownership with a pre-approval letter will improve your odds of making a sound investment and finding a home that fits your budget.
The Difference Between Pre-Approval and Pre-Qualified
It should be noted that there’s a distinct difference between pre-approval and pre-qualification. Pre-qualification is the first step to getting a mortgage, and it’s very basic. A lender will analyze your general financial information (monthly income, debt, etc.) and provide a rough estimate for how much home a person may be able to afford. It’s so simple it can be done over the phone.
A pre-approval is much more in-depth and carries more weight. You’ll need to complete a mortgage application, which may come with a fee. The lender will also scrutinize your credit report to determine a specific loan amount that would be approved.
Pre-Approval Gives You a Competitive Edge
In some cases, pre-approval can mean the difference between getting a home and losing it to another buyer. The team at Ryan Cassidy Group specializes in Triangle real estate in North Carolina. In popular cities like Chapel Hill and Raleigh, their agents always advise buyers to get mortgage pre-approval from a lender for the competitive advantage if nothing else.
Sellers prefer buyers that have already gotten pre-approval because there’s less risk that the deal will fall through. It signals that you’re a serious buyer that can back up an offer. If you find yourself in a multiple offer situation the decision could come down to who has a pre-approval letter.
Pre-Approval Tells You How Much You Can Afford
Most buyers choose to get a pre-approval letter from a lender because they’ll have a clear idea of how much home they can afford. Far too many first-time buyers get their hopes dashed by looking at homes that are way out of their price range. After that looking at lower priced homes can be a big disappointment because nothing compares to what you saw before.
No online calculator can replace having a local lender analyze your finances and create a bona fide pre-approval letter for a specific loan amount. Before you begin looking at homes and setting your sights on a specific type of property make sure you’re able to afford it.
Just keep in mind that going with the maximum approved amount could be aggressive. First-time buyers are better off looking for a home below their max amount so they have money left over for maintenance, repairs, HOA fees and other costs of homeownership.
Pre-Approval Makes Securing the Actual Loan Easier
Getting pre-approval helps you get the loan process underway before you find a home. You’ll already have provided the necessary documentation, had your credit report reviewed and established a relationship with a lender.
All of these things make loan approval much easier once you’re under contract. After signing a contract there are a lot of things that have to be done in a short amount of time to ensure the deal doesn’t fall through. Since most of the legwork has already been done on the loan, you can focus on getting inspections and appraisals completed before the contingency period is up.
Pre-Approval Can Help You Lock in an Interest Rate
If you’re worried about interest rates going up, then you’ll certainly want to get a pre-approval letter. In many cases, the pre-approval letter will outline specifics like the interest rate you can expect to get on a home loan. Some lenders will even allow you to lock in an interest rate for up to six months after the pre-approval letter is issued.
A loan pre-approval letter helps take some of the guesswork out of buying a home. For first-time buyers, it’s the best way to dip a toe in the homeownership water before jumping in.
Categories: Real Estate