House hunting can be one of the most fun parts of buying a home. But before you begin your new home search, you should give some serious thought to getting preapproved for a mortgage first. Why is getting preapproved so important? We’re glad you asked! Here are three reasons you should get a preapproval letter before you start searching for your next dream home.
Reason No. 1: You’ll Know What You Can Afford
When you apply for mortgage preapproval, you provide the lender with financial information that they then verify to determine your creditworthiness. The lender will determine how much money they are willing to lend you, based on the verified information. This will give you a solid idea of the price range you should stick to when you start looking at listings. Keep in mind, too…you don’t have to borrow the full amount for which you’re preapproved. If you’re preapproved to borrow $200,000, you don’t have to look at $200,000 homes. In fact, most financial advisors encourage living below your means, so searching for homes in the $160,000-$180,000 range may be more financially wise.
Reason No. 2: Sellers Will Know You’re Serious
When you get preapproved for a home loan, the lender gives you a preapproval letter. This is an official document that says you have already begun the process of getting financing, as well as the fact that the lender has verified your income, debt, assets, credit score, and other financial aspects, and has determined that you are creditworthy. This document can be shown to the sellers or their agents as proof that you’re serious about your offer. Sellers don’t want to waste their time on people who are “just browsing,” so being a preapproved buyer helps set you apart from the competition, especially in a seller’s market.
Reason No. 3: You’ll Avoid Last-Minute Disappointment
While you don’t have to get preapproved for a mortgage before you make an offer, doing so can help you avoid the unpleasant surprise and disappointment that can occur when a loan agreement falls through at the last minute. This happens more often than you may realize. Even buyers who work hard to keep a high credit score and have saved up enough cash for a down payment can get denied for a mortgage. This can happen for a variety of reasons. Maybe their debt-to-income ratio was too high, maybe their down payment funds aren’t from an approved source, or maybe they applied for a special type of loan that they didn’t meet all of the qualifications for, such as a VA loan or USDA loan. Whatever the reason, going through the process only to be turned down for financing at the last minute can be extremely frustrating–for buyers and sellers, alike.
Getting preapproved means protecting yourself from those types of situations and ensuring that, barring something totally unforeseen, you and your lender are ready and willing to move forward with the transaction.