Getting a mortgage pre-approval, or simply “pre-approval,” is an important step in the homebuying process that you may want to consider if you want to fulfill your homeownership dreams. A pre-approval simply means that a lender initially determines that you qualify to take out a mortgage up to a certain amount. Obtaining a pre-approval from a lender could give you an edge especially when there’s a low inventory in the housing market.
Having a pre-approval lets home sellers know you’re a serious buyer
As someone looking to buy a home this year, you may find it difficult to buy your dream home because of the increased decline in housing inventory. This could mean that you might find yourself competing with millions of other people who are currently in the market looking for their dream home. However, if you’ve got a pre-approval, home sellers and real estate agents have an idea that a lender has initially reviewed your capability to repay the amount you plan to borrow. A pre-approval could help you stand out from other homebuyers who only get a mortgage pre-qualification from a lender.
In a mortgage pre-approval, the lender verifies the documents you submit and makes a hard inquiry (you authorize the lender to pull your credit records) on your credit history before offering you a quote; unlike in a pre-qualification where the lender only gives you a rough estimate of the amount you can borrow by simply looking on your documents without doing any verification. Although they are two different terms, some lenders could use them interchangeably, so it is advisable to know the difference.
How a pre-approval works?
Although a pre-approval gives you an advantage as a homebuyer, you need to keep in mind that you’re neither approved nor denied of taking out a mortgage with a lender. To get a pre-approval, a loan advisor will require you to submit employment records subject to verification, proof of income, proof of assets, and credit records. Some lenders may even require you to provide additional documents as needed. Typically, a loan advisor will help you determine the best loan option that suits your needs. Once a loan advisor issues you a pre-approval, you can start your home shopping journey and confidently make reasonable offers to home sellers.
Depending on a lender, a pre-approval could last up to 90 days to give you enough time to shop for a home. Since you have a pre-approval letter from a lender to show, home sellers are confident that you’re out in the market shopping for a home. Your loan advisor can update your pre-approval so that it will match the contract terms whenever you make an offer to a property you wish to buy.
Once a seller accepts your offer, you need to secure an appraisal for the property before you can get a final loan approval. An appraisal helps lenders determine if the property has enough value to secure the amount of loan that you wish to borrow.
Consider getting an advance approval instead
As a serious homebuyer, you might have an idea that it could take you an average of 30 days to close on a home, even if you’ve been pre-approved. However, there are mortgage companies that offer advance approval that could help reduce your homebuying process to an average of 21 days. Speak with an RPM loan advisor today to find out how you may get an advance approval.