While you may look at open houses and scan real estate listings for months before you're ready to move, once you start actively looking for a house with your real estate agent, you typically have to make your buying decision fairly fast. One reason is because your mortgage pre-approval has a time limit. Here's why you want to get pre-approved for a mortgage, and how the process works.
Sellers Tend To Prefer Buyers With Pre-Approvals
If there's competition for homes in the area where you're looking at real estate for sale, then you might have an edge with the sellers if your mortgage is pre-approved. This shows the seller you've been in talks with the bank, and the bank has found you to be an acceptable candidate for a loan based on your income, credit history, and savings.
This removes some of the uncertainty over the sale falling through because you can't qualify for a mortgage at closing.
You'll Know What You Can Afford
Another reason to get a loan pre-approval is that you'll know for sure how much you can bid on a home considering how much your mortgage has been approved for and how much savings you have. This is important to know since you may not get as much money from the lender if your credit history isn't the best.
A Pre-Approval Qualifies You When You Apply
It's important to know how the pre-approval process works before you start looking at homes. When you apply for the pre-approval letter, the lender qualifies you for the loan based on your credit and income the day you apply. When you close on the house, the process starts all over, and you have to qualify again for the final mortgage.
If nothing has changed with your financial picture, you should have no trouble getting the mortgage, but if you've made a mistake, such as missing a payment or opening a new credit line, that could affect your ability to get a mortgage even though you've been pre-approved.
That's why there's a time limit attached to your pre-approval letter. Your circumstances can change in a short amount of time, so the pre-approval of your mortgage may only last a few months.
Another thing to understand is that even if you do qualify for the loan at the time of closing, the house has to qualify also. The lender can decide they don't want to loan money on a particular house, and there's not much you can do about that.
If you have questions about the pre-approval process, talk to your real estate agent. The agent might recommend a reliable lender so you can get started. As soon as you have your pre-approval letter, you can begin looking at real estate in earnest so you can buy your new home.Share