Benefits of a Pre-Approval
- posted 2.27.2014
- Rebecca Singer
- Personal Finance
Are you in the market to buy a new home? Have you recently considered making an offer on a listing? If so, it may be time for you to take the next step and become a pre-approved home buyer. Continue reading to learn about the benefits and the powerful advantages of a pre-approval.
What is a Pre-Approval?
A pre-approval, not to be confused with a pre-qualification, is statement issued to you by a bank or direct lender verifying the total amount that you may borrow for a home loan. The pre-approval statement would be provided to you after you have sent in the necessary documentation and the lender is able make a commitment to lend based on your current financial situation. Keep in mind that a pre-approval does not guarantee that you will qualify for a loan in the future, as various factors could affect your pre-approval status. For more information about what is needed for a pre-approval or the difference between a pre-approval and a pre-qualification, here are home buying frequently asked questions.
In today’s competitive housing market, it is not uncommon for a seller to receive multiple offers on their home; having a pre-approval in your hand could be the difference in your ability to purchase the home of your dreams. The pre-approval letter proves to the seller or real estate agent that you are serious, gives you necessary bargaining power and an advantage over other buyers.
With a loan amount in mind, you will already have a head start in researching your dream home because you have a realistic idea of what you can afford. This will drastically narrow your search criteria and will save you time in the home buying process.
Requesting a pre-approval in advance will also help you analyze your financial situation. If you are unable to obtain a pre-approval or did not receive as high of a loan amount that you hoped for it is better to address any issues or areas of concern before making an offer on a home. Whether you need to raise your credit score, improve your debt-to-income ratio, or save more money for a down payment getting these questions answered upfront by your bank or direct lender will give you a clear picture of what you can work on to qualify in the future.