Mortgages can be daunting, but getting preapproval may make your hunt for a new home much smoother.
Want to know the fastest way to land your dream house once you find it? Have a mortgage preapproval letter ready before your eyes land on the listing.
While getting preapproved before you buy your house takes preparation and patience, being preapproved can make you more attractive to sellers and speed up the home-buying process, which is great when you’re competing with other buyers in a hot market.
Still not convinced a preapproval is for you? Here are the benefits and costs to the mortgage preapproval process.
What about prequalification?
Most agents require buyers to get prequalified to purchase a home — but don’t confuse this process with preapproval. Prequalification is a much quicker process, but you’re given the OK based on information that you provide, so nothing is official when it comes to your eventual loan.
“A big piece of that puzzle is the prequalification piece — some [buyers] will come already having spoken to a lender, either with their own initiative or at our suggestion,” says Atlanta-based RE/MAX agent and team leader Maura Neill. “For the rest of them, we discuss the importance of getting prequalified, not just to protect themselves and to make sure that we’re only viewing homes that they can afford, but also to strengthen their position as a buyer.”
Benefits to mortgage preapproval
The preapproval process takes a little longer than prequalification and probes deeper into your credit, but it gives you extra time to address unexpected entries on your credit reports, gives you an actual dollar amount that your mortgage is approved for, and might even give you a sense of the interest rate you’ll be charged.
You’ll also get a conditional commitment to the loan amount, which will give you an advantage with sellers, and you’ll be able to set your sights on homes within your reach. Any offer you make won’t have to be contingent on financing since you’ve already got that covered!
“You must know how much you can spend before you can spend it,” says Michael Barbolla, chief operating officer of New York City–based brokerage firm Charles Rutenberg LLC. “Sellers and their brokers will want to know you are qualified to purchase their apartment before they will begin negotiations. The preapproval will give the buyer a good-faith estimate at the outset as to what the closing costs will be for the transaction, and these numbers should be built into the financial picture for the transaction.”
Caveats to mortgage preapproval
All of the above sounds awesome, right? Of course, with the good comes the not-so-good. Like most great things in life, mortgage preapprovals come with expiration dates, so you may feel the need to rush into making an offer.
The process can be pricey, since unlike a prequalification, a preapproval involves application fees and other costs upfront, before you’ve even set foot in an open house. Additionally, loan preapproval comes with hard inquires into your credit — and that could hurt your score if multiple checks are made in a matter of weeks or months.
But most real estate professionals say if you can do it, you definitely should.
“There really is no downside,” says Neill. “There are so many benefits to getting prequalified, and even more to getting a full preapproval prior to making an offer.”