When you first start looking at homes, agents will often ask if you will need financing. If you do, you’ll likely be asked if you gotten preapproved. It’s a simple process where, either online or in person, a loan originator will have you fill out a questionnaire about your finances and credit. It won’t take long to do and it helps you understand why you qualify for the loan. There are a number of good reasons why it makes sense to start the process of looking with getting preapproved. Here are a few.
- Getting preapproved lets you know how much you’ll be able to borrow
- It will establish your credit score, your history in paying off loans, credit cards and other bills
- It verifies your income, savings, personal assets, current rental expense and other debt obligations, like student or car loans
- Once preapproved, you’ll know the price range of homes you can afford
- If you don’t qualify at the time of the application, you’ll have an understanding of what you’ll need to do to get preapproved
- Preapproval shows agents and sellers that you’re serious about buying
- Sellers are starting to request buyer approval letters more often, before they will consider signing or even negotiating a contract to buy
- Finally, once you’re ‘under contract’, you’ve already done much of what you will need to apply for the loan under the terms of the agreement
You can see why preapproval serves both you and the seller. The owner doesn’t want to negotiate, settle on a price and terms, pack up all their belongings and then find out the bank turned down your loan request. Likewise, you don’t want to look at numerous homes, find one that feels like your new home, negotiate, agree on a price, pay for a structural inspection (see our Structural Inspection page) and then find out a bank won’t give you a mortgage.
You may want to consider interviewing a number of lenders. We can give you a list of originators and institutions who make the preapproval and mortgage process easy and who generally have good rates and terms.