Many home buyers believe that searching for a home is the first step in the home buying process. However, the reality is, obtaining a pre-approval letter should be your first step in purchasing a home. Why do I need to obtain a pre-approval letter from a lender? There are several reasons why it’s not only important, but smart to get a pre-approval letter. But wait, there’s a pre-approval letter and a pre-qualification letter, what’s the difference?
A pre-qualification will show what you can afford, while a pre-approval letter confirms what you can afford with supporting documents such as bank statement, pay stubs and credit reports.
Let’s explore the reasons why you should obtain a pre-approval letter:
Realistic Budget - When meeting with a lender, you’ll most likely discuss your goals with homeownership and what you can afford. A pre-qualification letter will give you a vague idea about what you can realistically afford when shopping for a home. However, when obtaining a pre-approval letter, it considers all of your income, current debts, job status and so much more. This will be the crucial part in figuring out what your realistic budget will be.
Actionable - The housing market has been a bit aggressive these past couple of years. When you’re putting together an offer with your realtor, having a pre-approval letter will make your offer instantly actionable. This means that the lender has determined how much money you are eligible to borrow before you actually apply for the loan.
Target Homes - Nothing's worse than browsing the internet for homes, finding one you love and not being able to afford it. After you have confirmed your home affordability with a lender, you can get with a real estate agent (I know one!) to set you up a search for homes within your affordability. This will give you a more targeted search that’s tailored to you and avoid the heartache of finding one that’s outside your budget.
Reduce Surprises - Talking with a lender prior to finding your new home can assist with ensuring that you’re not surprised when it comes down to making your offer. Being knowledgeable and knowing what you can afford during this phase of the homebuying process will leave little room for surprises such as a low credit score or low debt-to-income ratio.
Shorter Closing Periods - Obtaining a pre-approval can definitely contribute to a speedier closing process as your lender has already obtained your financial statements and put you into their system.
When it comes to starting your search for a home, don’t wait until you want to put in an offer to obtain financing and affordability information. It may seem like a daunting task in the beginning, but it will definitely be worth it to all parties involved if you secure a pre-approval letter from a lender. If you have any questions about the home buying process, I am here to help!
Want to start with a lender? Here are two of my trustee lenders!