Why Get a Pre-Approval Before Beginning a Home Search?
When in the process of buying a home, it’s natural to begin the process by doing your own looking around. It’s exciting to imagine what neighborhood you may want to target and what size and style of home appeals to you. There’s no harm done in satiating your curiosity and doing a little dreaming. It’s a little like window shopping - without a wallet.
For serious buyers, buyers who are actually shopping and getting ready to make a purchase, shopping without a pre-approval is like shopping with a wallet but not knowing how much you are carrying. Without knowing what your purchasing power actually is, you could be shopping for something well above or below your range to buy.
Before you get too carried away with some harmless window shopping, reach out to a reputable lender to be pre-approved for a loan. This will equip you to be acknowledged as a serious buyer when you find a home you love.
What is a Pre-Approval?
“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. The lender you work with will provide you with a pre-approval letter, which is an official document that states the maximum amount they are willing to lend you…”
Benefits of Pre-Approval
Pre-Approval provides buyers a letter of the loan and downpayment amount that you are approved for by your lender.
Pre-Approval positions you to create definition and realistic parameters around your home search saving you valuable time and minimizing guesswork.
Pre-Approval demonstrates to sellers that you are more than just a qualified buyer, but that you are approved by a reputable lender.
Pre-Approval equips you to present an offer that a seller can seriously consider.
“. . . most sellers won’t even consider an offer unless the buyer is pre-approved at the right price point. Sellers and their agents want to know you’re ready and able to finance your offer amount. So you’ll want to have your pre-approval teed up as soon as you’re serious about bidding on a home you like.”
In many cases, the mortgage amount people believe they might be approved for is quite a bit off. Sometimes the amount of pre-approval is lower than expected, though, it is often higher, more often than you might think.
I’m Ready! How Do I Get Pre-Approved?
Ask your lender. If you don’t have a lender, your real estate advisor can offer guidance on reputable lenders to consider.
Reach out to one of our Real Estate Advisors today.
Common Questions About Pre-Approval
Is There a Fee to Request Pre-Approval?
Many lenders do not charge a fee to apply for pre-approval. Some lenders may charge a non-refundable fee, however, they may apply it to your closing costs if you proceed with that lender. With any lender, it’s a good question to ask, especially if you plan to apply with more than one lender.
What’s The Difference Between Pre-Qualification and Pre-Approval?
Pre-qualification requires less information and is therefore less accurate than pre-approval. To get pre-qualified, you tell a lender what your income, assets and debt are and your lender will run a soft credit inquiry. To be pre-approved, your lender will verify your income and run a hard credit inquiry.
Will Getting a Pre-Approval Hurt My Credit Score?
In a word, your credit score is safe when running credit for pre-approval.
Running credit for pre-qualification is considered a “soft credit inquiry” and will not to hurt your credit score. When a lender runs credit for pre-approval, this is considered a “hard credit inquiry” and may reduce your credit score a few points. However, pre-approval is a necessary part of the home buying process and is treated differently than other types of hard credit inquiries such as applying for financing for a vehicle or requesting an increase on your line of credit from your credit card company.
Ultimately, your credit score tells the bank how likely it is that you will pay back your loan. Running your credit for a pre-approval works in your best interest by building a hedge of protection around you as a borrower so you don’t find yourself in a home that you can’t afford.
How Long Is My Mortgage Pre-Approval Good For?
Again, this varies by lender, so this is another good question to ask. Some pre-approval letters will state an expiration date of 30 days, however, it is not unusual for this date to be extended. Be sure to inquire with your lender about if they will need to run your credit again if you want to extend your pre-approval period. Which leads us to our final tip.
Key Tip: Avoid Making Other Major Purchases Until After Your Home Purchase is Complete.
If you are applying for pre-approval or have already started the mortgage process, this would be the wrong time to apply for other lines of credit like car loans and store credit cards. Wait to make other major purchases until after you buy your home in order to protect your credit score. Instead, focus on paying down any debt and make payments on time to maintain or even bolster your credit score and position yourself to succeed in the process of your home purchase.