Many people don’t realize that pre-approval for a home mortgage loan is one of the first steps to accomplish before beginning the search for the perfect house. There are many reasons you shouldn’t wait until you find the house you want to buy before starting the application process for home mortgage loans. Here are a few reasons why pre-approval should happen first.
It’s not uncommon for someone to apply for a home loan and be denied due to problematic credit reports. Houses move quickly and often receive multiple offers, so if you get stuck in the process of applying for your home mortgage loan, you could end up losing the house you wanted because you weren’t prepared. When you apply for a home mortgage loan before you shop, you’re given an opportunity to correct any issues on your credit report that might interfere with your loan application being accepted. During the pre-approval process, do not make any expensive purchases such as cars or furniture, and don’t change your work history if possible. Lenders will be looking into your work history as well as your credit, and will be examining your debt to credit ratio as well. Any big purchases or changes in employment could negatively affect your ability to get approved.
Pre-approval for your home mortgage loan can give you an idea of how much cash you’ll need to bring to the table for your purchase. When buying property, it’s typical to pay 20 percent down as a down payment against your loan. You’ll also be required to pay closing costs, which average between 2 percent and 8 percent of the home’s total value. Knowing your budget for credit can also be a clear indicator of how much savings you’ll need before moving forward.
When you find the home you love before you qualify with your home mortgage loan, you end up in a state of desperation where you’ll do “anything” (within reason) to qualify to buy the house. You’ve already imagined yourself living in the space and would be horrified if you weren’t able to get the house. Desperation can back you into a corner where you’re willing to accept a loan with poor terms and high interest rates rather than losing the house you’ve been dreaming of. By applying early and making the loan process your first step, you have the option to “shop loans” and consider a few banks so you can make a choice that best suits your needs and your circumstances.
Pre-approval lets you know exactly what your home-shopping budget should be. Before you’re approved for your loan, you may think you have an idea of how much you want to spend, or would spend, if you had the funds. But there’s no sense shopping for a home that’s $300,000 if you’ve only been approved for $150,000. This can be another heart-breaking situation if you find a home you want to make an offer on and then find out you’re only approved for half of the home’s value. It can be devastating to watch your dreams dissipate in a financial crisis.
When you have a pre-approval letter for your home mortgage loan, your real estate agent can do a better job of finding homes for which you’re qualified to buy. Furthermore, pre-approval gives you the upper hand in making an offer on the home you decide to buy. Pre-approval lets the seller know you’re serious about buying and have the funds to back it. In the case of multiple offers or bidding wars, your pre-approval could give you the winning edge.
Don’t take the risk of finding a home you love and losing it because you’re credit wasn’t ready. Avoid the frustration of losing out to another bidder who had pre-qualification, thereby having the time advantage. Stay within your budget by knowing in advance how much you have to spend, and prepare your savings so that when you do find your dream house, you’ve got everything you need to move forward. Don’t wait until you find a home you “can’t live without” before you start applying for home mortgage loans. Seek your home loan first, then your real estate agent, then shop for houses, in that order.
Want to know more about the home loan process? Call us at 704-258-3117.
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