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Pre-Approval: Why it’s a good idea

Mortgage pre-approval is the process where you consult a mortgage adviser or lender to find out how much house you can afford. It’s an important step because it helps your real estate agent narrow down the focus of the house hunting. Your mortgage consultant will ask questions about your financial situation including credit history and income. Then you’ll talk to them about your comfort level when it comes to a monthly mortgage payment. It’s important to know this, in order to avoid payment shock! Your comfort level, basically means factoring in all of the other financial obligations, what can you comfortably afford to pay down and subsequently in mortgage each month and still be able to manage everything outside of paying for your home.

The pre-approval process goes an important step beyond a simple “mortgage calculator” in that the questions the advisor/lender will ask will do more than give a prospective mortgage amount. They generally give feedback, based on your truthful and introspective answers to their questions,

  • Powerful Buyer. Sellers often give preferential treatment to pre-approved buyers since they know for sure that you can finance the purchase. If you get into a bidding war with another buyer, the seller might look at your offer in a better light than someone who hasn’t talked to a mortgage consultant.
  • Interest Rates. As interest rates go up and down, you can get in on a locked rate before they go up again. You can lock in an interest rate if you are pre-approved, as soon as you have a signed purchase contract. A lower interest rate will save a lot of money over the life of that mortgage.
  • Credit Surprises. Mortgage pre-approval reduces credit surprises. If you wait until the last minute to secure financing and find that you have a few issues that need to be resolved with your credit, you could miss an opportunity to purchase your dream home. Getting pre-approved will help you head-off surprises so you can go look for the perfect home.

An equally beneficial aspect to getting pre-approval is the time saved to both you and your realtor. Let’s paint a picture. You’ve contacted Carod Properties because you think you’re ready to buy. I mean, why would you go anywhere else? You spend weeks looking at 30 or so houses, and you’ve finally found the one. You make an offer…it’s accepted. Your lender does not approve you, or the terms that they will approve are far outside of what you are able to manage. (Interest rate is too high; the down payment is way too high; your credit rating is not high enough) Now, the seller, the seller’s realtor, you, and your realtor have wasted time and energy on a deal that was doomed from the beginning because you were completely unaware of the full scope of securing a mortgage.

Many reputable realtors, now, will not even show you houses unless you’ve taken the step of pre-approval. As experts, they know exactly what’s needed and the invaluable information and time-saving magnitude of obtaining pre-approval prior to beginning your search. Now, why wouldn’t you listen to the experts? Exactly!