Real estate agents push their clients to get prequalified for a home loan all the time and in today's tough economy and tight credit market if you are seriously considering the purchase of a home you should follow your agent's advice, since getting preapproved for a home mortgage can save you lots of headaches in the future.
The preapproval process takes just a little more work than being prequalified for a home mortgage, and takes the risk out of being denied for a home loan after you find the home you want to buy. Being preapproved for a mortgage is also a great tool to use to your advantage when it comes to negotiating the price on a home.
A lender’s full preapproval gives you a starting point for your home search by establishing the amount you can borrow, and a series of other advantages. Here are the top five reasons to be preapproved for a mortgage:
Getting a preapproval letter from a lender will allow you to know exactly how much home you can purchase, and streamline your home search because you won't waste time looking at homes you can't afford. Homes outside of your price range will be off grounds.
During your home search, you may find homeowners who have received more than one offer. In this case, they will pay closer attention to offers that include lender prequalification and preapproval letters. A preapproval letter tells them that you're already working with a lender that's willing to finance your purchase and that you can perform. This can often be a major motivator for owners wanting to sell their homes.
3. Saves Time
Since your lender has to do work in advance, including a credit check and confirmation of income to determine borrowing qualification, time is saved when you find the home you want to buy. As long as you don't make any drastic changes to your financial situation before escrow is opened, things can move ahead much faster. The bank has already agreed to finance your home purchase. Now, it's just a matter of gathering up the information for any additional data the lender requires and having the home appraised.
4. Additional Costs
Sometimes, first time homebuyers particularly aren't aware of additional costs that come with buying a home like title insurance, lender closing costs, homeowners insurance and escrow fees. With an itemized list of costs provided after being preapproved, purchasers are armed with good information so you can be ready for any additional expenses that may come your way. This may help when it comes to making decisions on buying a home that needs repairs, renovations, landscaping or other work.
5. Negotiation Advantages
Being preapproved for a mortgage lets homeowners know that you are serious about buying a home and demonstrates you have the ability to perform. This gives the buyer the advantage of strength in negotiations since your approval is as good as a “done deal” when it comes to buying a home, and allows you to offer a lower price than what a property is listed for on the market. Owners may be debating between your offer and a higher offer from a buyer who hasn't been preapproved. Your status just might motivate them to be a little more flexible with your terms.