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Increase your credibility when you start shopping for a home or real estate by getting pre-qualified or get pre-approved to have your budget and financing in place, prior to making an offer. Fortunately, knowing how much you can spend is easy: Get pre-approved for a mortgage before you start any serious home-shopping.
Here are five reasons why pre-approval is so important:
1. The pre-approval process initiates a relationship between you and a lender. The mortgage loan approval and documentation takes time. The sooner you start this process the better. If you find a great deal on a property, and have to make an offer and/or close quickly, having the initial preparation complete with the lender complete will allow you to do so. If you wait to make an application until you have found a property, and are ready to make an offer, you may lose a highly desirable deal.
2. Pre-approval establishes the maximum the lender is likely to loan, based on your financial position and helps you narrow down your real estate search to properties within that price range.
3. You will know what the approximate interest rate and amount of the monthly payment.
4. You may want to lock-in the interest rate with your lender. If rates are low, and you expect them to rise, you can lock in the rate while you search for the real estate you want. This will protect you from higher costs if rates rise.
5. Most importantly you will establish credibility with your real estate agent and with sellers if your loan is pre-approved. Many real estate agents and sellers won’t take you seriously until you have a pre-approval. Don’t waste their time, or yours.
More points to consider:
There is a significant difference between loan pre-approval and loan pre-qualification. Your lender can do a quick pre-qualify based on what you tell them about your income, employment and basic credit information but the lender is not agreeing to loan money or making any commitment to an interest rate.
Loan pre-approval is a more formal process. You will need to provide the lender with your documentation and other information that will allow them to make inquiries into your credit history, obtain your credit score, and identify the appropriate type of financing for your situation.
When you get pre-approved, you will have a letter indicating the maximum loan and the interest rate you qualify for. A pre-approval letter gives you, your agent, and the seller higher confidence in any offer that you make.
