Benfits of Getting Pre-Approved for a Home loan before you start looking for a home
Getting a loan preapproval is generally the way to go because it is a more formal and detailed process before being preapproved for a loan the creditworthiness of the borrower is checked as well as other financial information about the borrower is required. Getting preapproved for a certain amount means that you have been formally cleared by the lender to be able to borrow that sum of money. The lender verifies your current income, expenses, future predicted debts with proper documentation. The process is very similar to underwriting where your current assets and liabilities and even employment is considered before giving you your preapproved borrowing amount. If you happen to be self employed the lender conducts a analysis of your federal tax returns for the past couple of years.
The lender will probably have a look at your credit report, verify your bank account statement, your income along with any other documents that you have submitted. This entire process could take up to a couple of weeks. But usually it is well worth the wait as it gives you an added advantage. In fact it gives you 2 advantages to be preapproved for a home loan before looking for home.
You know what your budget is even before you start looking for a home
When you have been preapproved for a loan you already know what you can afford to buy. It is almost like having a line of it available to you. When you find a house that you like and it is within the limit of the amount you have been 3 approved for you can proceed with the confidence that you have the money available to you. However, you must stay in touch with the lender through the time that you are looking for the house. While you have been preapproved for a certain amount this is not completely hard and fast. If the interest rates have been to increase during this period the amount you can qualify for a decrease. But subsequently if the interest rates decrease you may be able to take advantage of this fact and borrow a larger sum of money.
You have an advantage in a multiple offer situation
Let’s say that there is more than one offer on a particular property that you want to purchase. If you are the only one who has been preapproved then you will have an upper hand because the seller will take your offer more seriously. He will know that you are a genuine buyer and will be more confident that the sale is likely to go through as you have already been approved for the sum of money required by the home. Being preapproved also means that you have been deemed creditworthy by the bank which is another good sign to the seller.
Getting preapproved usually will cost you a fee. This is because the lender has to go through manual loan approval process as well as make charges for purchasing your credit report and credit score. Lenders do not like to complete this process for free because preapproving you does not necessarily mean that you’re going to choose them finally for your mortgage loan.
There will be a mortgage lenders who will offer you a preapproval free of cost. This does not necessarily mean that you should deal with these lenders only. What you save on the initial cost, you might have to pay back with a higher rate of interest. Also when taking a mortgage loan the reputation and the comfort factor with the lender is equally important as the interest rate. Choose to work with the mortgage lender that not only offers a competitive interest rate on the markets but also somebody you can rely on to be helpful, accommodating and communicative in the future.