If you’re ready to purchase a new home, one of the smartest steps you can take is to obtain a pre-approval for your new mortgage. Even if you have a pretty good idea of where you stand in terms of finances and what you think you can afford, going through the pre-approval process can inform every subsequent step of your home buying journey.
Obtaining a pre-approval does take a bit of effort initially, but usually manages to save everyone, including the buyer, realtor, and lender, quite a bit of time and frustration. By submitting most of your current paperwork for review by your lender, you can gain valuable information and set yourself up for the best possible outcome.
Low-interest rates and a lack of inventory make today’s housing market extremely competitive. Pre-approval is one of the best ways to prepare for buying a home in this seller’s market. Here are some of the main benefits of mortgage pre-approval and why it can be such an asset as you look for a new home in 2021.
Additional Read: Mortgage Pre-Approval Tips
What is Mortgage Pre-Approval?
Getting a mortgage pre-approval is like a dress rehearsal for securing your actual mortgage. Ideally, you’ll want to get a pre-approval as soon as you’re ready to think about buying a home.
A lender will examine the documentation you submit to show your income, assets, liabilities, and credit score to pre-approve you. They’ll use that information to let you know which loans you may be approved for, how much a lender is likely to let you borrow, and what your future interest rate might be.
Pre-approval usually requires a bit more legwork than prequalification, but it also yields more accurate results. Rather than just inputting your information, you’ll be required to gather and submit documentation like pay stubs and bank statements. Your lender will also make a hard credit pull to assess your credit score and take a look at your current liabilities before deciding.
Since you’ve gone through the effort of obtaining a pre-approval, there should be a lot fewer surprises when you are ready to buy your new home. Though the pre-approval isn’t always guaranteed, you’ll more than likely breeze through to the closing process unless there are significant differences between when you applied and when you are ready to close on your home. The main issues that prevent pre-approved clients from gaining final approval for a mortgage are drastic changes, like a job change or job loss, large purchases, or other credit commitments that you make after your initial pre-approval application. As long as you avoid these things before you close, you should expect to secure your approval.
Get Financial Clarity
One of the most significant benefits of pre-approval is that it gives you incredible financial clarity. Rather than making guesses about your financial state, you’ll have precise answers by going through the pre-approval process.
Regardless of whether you think that your finances are in good shape or not, you’ll have a pretty good idea once you’ve gone through the pre-approval process. You’ll find out what your credit score is, see what you’ll be expected to come up with for a down payment, and take a good look at what your debt-to-income (DTI) ratio is.
If it brings to light some improvements that you need to make, you’ll have a better idea of what to work on to prepare better to obtain the best deal on a mortgage in the future. Knowing what’s on your credit report might be the first step in working to bring up your credit score. Or if saving for a larger down payment gets you a better deal, you’ll find that out, too.
Your mortgage pre-approval results might also be the green light that you needed to move forward in the home buying process with confidence, armed with new knowledge of the actual budget for a house that you can afford. People often find that lenders approve them for more than they expect. Taking that into account with what you can look forward to as monthly payments and closing costs will be the best way to move forward with your search for a new home.
Narrow Your Search
We all love to scroll through real estate listings, looking for properties in desirable neighborhoods, or gawking at the décor in elaborate, sprawling homes. Without a pre-approval, you’re essentially window-shopping without knowing how much you can spend on a new home, so spare yourself the agony.
Without accurate pre-approval information, it isn’t easy to guess with any degree of precision whether you can afford a nicer property than you thought or to know that you need to trim your budget to better suit what you can afford. Either way, a pre-approval gives you the information you need to target your search towards homes in your price range.
Prepare For Incidentals
There are a lot of different elements that comprise the final cost of buying a home. Things like HOA fees, property taxes, closing costs, and other fees may be part of your future financial responsibility. Getting pre-approved lets you know what you have to work with as far as your likely future mortgage is concerned. This information gives you a concrete price range of properties that you can afford and whether your lender will loan you that much to complete the purchase.
Pre-approval can save you time and frustration by narrowing your search from the start. You know exactly what to look for as you start looking for properties with your realtor to avoid potential heartbreak or miss out on better opportunities.
Bid With Confidence
Today’s housing market is extremely competitive. The current low-interest-rate environment and reduced inventory on the market often mean that houses will sell relatively quickly, in some areas within hours of being listed.
Having a pre-approval will help you stand out in a seller’s market. Apart from being a cash-buyer, having your pre-approval in-hand is the next best thing. It shows that you are fully funded and prepared to buy this home at this price right now.
When you submit an offer on the home that you’re ready to buy, indicating that you have your financing in order and are prepared to move forward to close quickly can make all of the difference to a seller. Offers with pre-approval almost always carry more weight than comparable offers from interested parties who aren’t pre-approved. It is not unheard of for a seller to choose a marginally lower bid with pre-approved financing because the buyer with pre-approval is ready to go to closing.
If a seller decides to counter your initial offer or you find yourself in a bidding war, you know your parameters. Again, this takes a bit of anxiety out of the purchase process because you’ll learn how high you can without exceeding your budget. To successfully negotiate, you have to know what you can put on the table.
Contact A and N Mortgage Today
If you’re ready to buy a home, getting pre-approved by your lender is a great way to start the process. Without a pre-approval, you’ll probably find the current market pretty unaccommodating. Since things move quickly, you’ll want to be prepared, ready to move forward with the best financial moves for your family and your future.
Pre-approval does take some time and effort. You need to put together the documents required by the lender to assess your financial situation and submit them. You’ll have to do all of that eventually, anyway, for a lender to determine your credit risk and creditworthiness. Even better, this will save time and stress down the line.
Getting pre-approval will speed up your reaction time for every part of the home buying process because you know where you stand with your lender. You don’t have to worry about whether houses will fit in your budget because you’ll know what you can afford and what you’re already approved for. If you’re ready to submit an offer, knowing that your financing is secured and you’re serious about purchasing a property can make all of the difference to a seller. It gives you a serious advantage in a competitive market like the one we’re in.
With a pre-approval, you’re squarely positioned to move forward with purchasing your new home. If you’re ready to buy a home in 2021, feel free to contact us. Our knowledgeable mortgage officers, who are the best in the Chicago area, will help you get started today. We’ll guide you towards the best home loans and through the entire process, from pre-approval to closing.
Low-interest rates make this one of the best times to forge the path to homeownership if you’re still considering your options. Together, we can tackle the home buying process with precision and offer one element of certainty in these unprecedented times.
A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.