Mortgage Preapproval Provides Home Buyers with Many Advantages
If you are considering purchasing a new or existing home, the first step you should undertake is to obtain a mortgage preapproval letter from a mortgage lender. Getting prequalified is not the same as being preapproved for a home loan. Prequalification is a relatively simple process that is often performed over the phone or internet. The applicant supplies a brief overview of his financial situation and the loan officer provide him with a rough estimate of how much the lender will loan.
Preapproval takes that a step further. The applicant fills out a loan application with the lender in person, over the phone, or online. The loan officer returns with an amount the lender is willing to loan the applicant as well as a preapproval letter that the borrower can use when they make a purchase offer. There are many advantages to being preapproved by a lender before beginning your search for your new home.
Knowing What You Can Afford
By being preapproved for a set amount, you will only look at homes at or below that price range. You will not waste time looking at homes outside of your price range. Your real estate agent will be able to tighten the range of homes they present to you. Do not underestimate the value of your time. You do not want to waste weeks looking at a home only to find out you cannot afford it.
Greater Confidence When Negotiating
There is something to be said for knowing how much you have in your pocket when approaching a homeowner. You know you can afford the home. That is without question, but you may be able to get the home significantly cheaper by having a preapproved loan in hand. Often homeowners are willing to take a lower price than the list price if they don’t have to waste time with an unqualified buyer. They do not want to go through the process of pulling their home off the market only to have a deal fall through because the buyer cannot obtain financing. With a mortgage preapproval letter, you are the perfect buyer and have increased power in the negotiation process.
The Ability to Close Quickly
The loan application process is often the longest portion of the closing process. By being preapproved, you have eliminated that step from the process. Lenders can immediately order an appraisal. The closing process can be shortened from a period of approximately thirty days to around 10-12 days. If the seller is highly motivated and needs to move quickly, this makes your offer that much more appealing, and you can use that to your advantage in the negotiation process.
You will inevitably go through the loan process at some point during the home buying process, but by going through the process at the beginning rather than the end, you save time and increase your negotiating power. You will only look at those homes you can afford, and you will be able to negotiate from a position of strength when it comes to the final sale price.