The Advantage of Loan Preapproval

The Advantage of Loan Pre-approval

If you're looking to buy a house this spring, the property market can be tricky. It's critical to have a clear handle on your homebuying budget because there are currently so few properties available for sale and because mortgage rates are higher. To identify the ideal home and move swiftly when it comes time to make an offer, you'll also need a strong sense of purpose. Obtaining pre-approval vs pre-qualification is one action you can take that can help in your preparation. You need to understand what pre-approval is to appreciate why it's such an essential component when financing a home.

A lender evaluates your financial situation as part of their lending process to decide how much money they are willing to lend you. In a prequalification, the lender will conduct a high-level review of your income, debts, credit score, and employment. They will indicate the type of loan and interest rate you are eligible for and if you qualify for a home purchase loan based on their internal criteria. The pre-approval process takes a much deeper dive into your financial situation by compiling and verifying additional information regarding your assets, liabilities, tax returns, paycheck stubs, and bank statements. Next, your complete file is submitted to the loan underwriter who will further review and verify all your documentation to ensure it complies with the lender's loan guidelines. Once your loan is conditionally approved, the lender will issue a pre-approval letter. Now, you are ready to start looking at homes and submitting offers using the preapproval letter that your lender issued. 

This is how Freddie Mac explains it:

“A pre-approval is an indication from your lender that they are willing to lend you a certain amount of money to buy your future home. . . . Keep in mind that the loan amount in the pre-approval letter is the lender’s maximum offer. Ultimately, you should only borrow an amount you are comfortable repaying.”

Pre-approval essentially gives you a home-shopping budget that will allow you to search for a home and buy without getting in over your head on a mortgage. A firm grasp of your financial capabilities is even more crucial now that many purchasers' affordability is being impacted by increasing mortgage rates.

Pre-approval Demonstrates Your Seriousness as a Buyer

Another benefit of pre-approval is that it can also make a seller feel more confident in your offer because it demonstrates your commitment to purchasing their home. Making a strong offer when you find the ideal home is crucial, especially this spring, when sellers are noticing a rise in the number of offers.

According to a recent Wall Street Journal (WSJ) article:

“If you plan to use a mortgage for your home purchase, preapproval should be among the first steps in your search process. Not only can getting preapproved help you zero in on the right price range, but it can give you a leg up on other buyers, too.”

To Sum It Up

When buying a home, being pre-approved is a crucial first step. It informs lenders of your borrowing capacity and demonstrates your seriousness to sellers. Make contact with a reputable lender and a local real estate expert to ensure you have the resources necessary to buy a home in the current market.

Call/Text 214-680-7992 or email hello@fortworthmetroliving to get connected with a lender and an experienced local realtor to start the home-buying process.