One of the most important steps in the home buying process is receiving pre-approval for a home loan. Many buyers actually apply for a loan and receive approval from a lender before searching for a home. This is called pre-approval.
Why is pre-approval important at the beginning of the home buying process?
- Pre-approval can cut days or even weeks off the closing process, since the lender has already analyzed your credit and approved you for a mortgage.
- Pre-approval strengthens your offer and negotiating position. A home seller will often choose an offer that is pre-approved for a mortgage over someone whose financial picture is still in question.
- Pre-approval will determine your price range and narrow your search parameters. Based on your down payment and pre-approved mortgage amount, you will know how much you can afford before you start looking for a house.
Many buyers confuse pre-approval with pre-qualification, but they are very different. When a buyer is pre-qualified, the lender has determined how much he/she can borrow based only on information the buyer has provided to the lender. However, none of the information has been verified. The buyer must still fill out a loan application and go through the lender's approval process at a later date.
When a buyer has been pre-approved, the lender has already done a credit check along with verification of employment and deposit. The lender's pre-approval is a commitment to loan the buyer up to a certain pre-determined amount. The only thing missing is the lender's appraisal of the home to confirm its value. Your real estate agent or mortgage professional can help you determine your pre-approval amount and make the home buying process go more quickly and smoothly.