The decision to buy a home comes with many financial considerations; for many, affordability is at the top of the list. There’s real peace of mind to be gained by knowing how much house you can reasonably buy before seriously conducting your search. By getting preapproved early in your home buying journey, you allow for a smoother buying process and more informed purchase decisions along the way.
Pre-Qualification vs Pre-Approval
To understand the value of a preapproval, we must first take a look at the difference between getting pre-approved and pre-qualified for your mortgage loan. In getting a pre-qualification, a mortgage lender gives a rough estimate on how much home you can potentially afford based upon provided information such as your income, your estimated credit scores, and any current outstanding loans or revolving debt.
Having this estimate will give you some insight into how much home you could afford and what a mortgage payment could look like. While the information given on a pre-qualification can help set budgets in your home search, it’s important to know these numbers are only an estimate and are not firm.
Once you’re committed to your home search, the most valuable next step you’ll want to make is getting pre-approved. Unlike a pre-qualification, a pre-approval uses verifiable information – income from recent tax documents and up-to-date credit reports – to provide you with a more accurate look into what you can afford in your new home.
This documentation will also be needed when you ultimately apply for your loan, so keep them handy (and don’t do anything that could lead to substantial changes).
The Value of a Pre-Approval
Using real numbers based upon a mortgage pre-approval is so valuable in your home search because it not only gives you perspective into how much you can afford but can put you in a more favorable position when making offers on your potential purchase. Having your pre-approval “in hand” shows the seller that you’re not only serious in your offer, but have the financial means and commitment from a mortgage lender to complete the purchase. In a competitive real estate market, this can make all the difference.
Whether you’re buying a pre-existing home, or looking to build, having a pre-approval gives you a real look into financing your homeownership and allows you to compare all of your mortgage options. If you’re ready to begin your home buying search with a pre-approval, download our FREE Mortgage Application Checklist and contact our Mortgage Team today.
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