Most new buyers might be a little intimidated when they begin a property search. Words like escrow, PMI (Private Mortgage Insurance), and pre-approval sometimes can overwhelm an already stressed out buyer.
A mortgage pre-approval is something that you get from a lender that simply says you are approved for a mortgage before you have selected a specific property. The process of pre-approval starts with you filling out a loan application and providing a lender with some income documentation. The lender will run a credit report and look at your rating, but many times lower ratings will not disqualify you, especially if you are a first time buyer.
The bank’s procedures are the same in the preapproval process as they are with a traditional mortgage application. They will then notify you that you are pre-approved for a mortgage, and they will tell you the amount of money that you can borrow. A good realtor generally has lenders they work with that can navigate difficult lending circumstances.
The advantages of pre-approval
One of the big advantages of going through the pre-approval process is you understand your budget and what you can afford. An additional and more important benefit in pre-approval is realtors need that information to help you meet your goals. An experienced realtor will always refer you to a lender before a home search begins so that you are not looking at properties that you cannot afford.
More Negotiating Power
A pre-approval gives you, the buyer, advantages in negotiations. Without pre-approval sellers only see uncertainty and ambiguity and are usually not willing to discuss any offers.
With a pre-approval in hand, a seller knows that your offer is backed by the lender, and that makes you more valuable. Being pre-approved is automatically going to give your offers a lot more weight when it comes to negotiating with sellers. Therefore, your odds of getting the house that you want are going to improve.