As you begin the process of buying a home, whether it be your first or your fifth, it is important to keep the boy scout motto in mind- Be Prepared.
So what does that mean with regard to buying a home? What is the first step in preparedness when it comes to finding the perfect abode for you?
The answer is two very important words- Loan Pre-Approval. Shocking, I know. This is not the usual place that future homeowners want to start. It seems a bit boring, a bit intimidating, and frankly sometimes it can be a bit confusing. So what is loan pre-approval and why is it so important we start here?
When you get pre-approved for a loan, you will meet with a lender, provide them with whatever financial documentation they need, and discuss what loan amount you are eligible for. They will look at your credit report, your debt to income ratio, pay stubs, tax history and job history to decide how much money they will lend to you. While loan pre-approval is not a guarantee of a future loan, it is an extensive process that gives everyone a really good idea of your financial situation.
After the meeting, if all looks good, they will give you a pre-approval letter. Then you are ready to rock and roll! House-hunting here you come!
Note: Loan pre-approval is different from loan pre-qualification. Pre-qualification is a less intensive process, can be done over the phone, and is really a guesstimate of how much you can eventually afford. It is not nearly as concrete and carries less weight than a pre-approval because the lender has not yet actually guaranteed that they will lend you money. When it comes to this stuff, loan pre-approval is where it is at!
Ok, next step. Discussing your loan pre-approval with your real estate agent is essential. It is here that you and your agent can start to build a plan for what homes you can afford, what neighborhoods are going to work for you, and what kind of home you can expect to get. With your loan pre-approval in hand, you will not waste any time going to look at homes you can’t afford and you won’t fall in love with a home that is out of your reach.
When you find your dream home, you and your agent will submit a copy of your pre-approval letter with your offer. This letter makes your offer look very strong in the eyes of the seller. Why? Because now everyone involved in the transaction knows that you can afford to buy the home. Being pre-approved makes you a cash-buyer in the eyes of the seller. If a seller has to choose between your offer and another person’s offer who is not pre-approved, they will choose yours! You are the real deal!
The beauty of the whole thing is that you have done your hard work on the front end. You have a relationship with a lender you have met and trust and you feel confident about what you can afford. Being pre-approved for a loan helps you get the home that you want without worries or hassle. Loan pre-approval is a no-brainer.
For more reading on loan pre-approval: