Why Is A Mortgage Preapproval Important When Looking To Buy A Home?
The housing market is competitive and sometimes the inventory of homes is much smaller than the number of people searching to buy a house. One way to gain an advantage over other buyers is to have a loan preapproved by your lender before you even begin looking.
Let’s go over the benefits of the preapproval:
1. Shows the seller you are serious
If a bank or mortgage company has already given you the green light to lend you money then the seller knows your offer is serious and they are likely to avoid financing issues that can make the sale fall through or extend the closing date.
2. Let’s you know your budget
A preapproval generally requires that you provide income and employment documentation for a loan. They also review any current debt you have to see the maximum mortgage that you can afford. But also, be careful with this because you must weigh in your utility costs and other bills to make sure that everything including your mortgage can fit into your budget. Be smart to make sure you will have no trouble with a loan default.
3. Makes you credit conscious
This may not sound like a good thing, but many people aren’t aware of their credit score. This shows what debt you have and how regularly you make your payments. This is very important to lenders and can sometimes affect the interest rate you qualify for on your loan. If you don’t have a great credit score you can make better efforts to pay things off and increase your credit score. This is not a permanent number but something that you can change by being financially responsible.
Lenders can range from banks to independent brokers and loan officers but if you take the time to shop around before you commit, you can see the fees and interest rates that are associated with each option. You want to choose a lender who is going to be honest and have your best financial health in mind rather than getting you approved for a huge loan with a high interest rate. Some lenders even run specials where they pay part of closing costs.
Be smart when you enter the market to purchase a house and educate yourself on all the financial lingo and be sure to ask your realtor about the financing process to make sure you don’t encounter surprises and that you understand your full financial responsibility.