Among the estimated 5.95 million homes sold in the United States, the vast majority involved the buyer having a mortgage. While many first-time buyers assume that they don’t have to worry about qualifying for a mortgage until they’re ready to move forward with an offer, getting a mortgage preapproval before they start house hunting is usually best. If you want to join the 64.9% of households that own their homes, here’s a look at how having a mortgage preapproval benefits you.
You Know What Price Range Is Viable
When you get a mortgage preapproval letter from a lender, you know the maximum amount that the lender is willing to provide you for a home. Essentially, the number in the letter represents the upper limit, as the lender is functionally stating it won’t give you more than what’s listed. As a result, it acts as a top-end threshold, and you can use that information to ensure you’re looking at homes that aren’t too expensive based on the lender’s cutoff.
Now, this doesn’t mean that looking at homes at that upper limit is always wise, financially. Preapproval letters don’t account for other costs of homeownership – such as property taxes and homeowners insurance – so you do end up paying more per month than just what’s needed to cover the cost of principal and interest. Still, if it’s financially viable, you could push up toward that line potentially, as the lender would likely issue that mortgage.
It Speeds Up the Home-Buying Process
With a preapproval letter, the home-buying process might move forward more quickly. You’ll usually have less difficulty finding a reputable real estate agent to take you on as a client, as they know you’re serious about moving forward with a purchase. From the seller’s perspective, it also shows that your financing isn’t as likely to fall through, which gives them peace of mind when considering your offer.
When it comes to closing, getting preapproved can also streamline the process. Your chosen lender already has most of the critical information it needs to process your loan, so there are no delays in them getting started. Usually, all a buyer needs to do is provide confirmation that any of the previously supplied details are unchanged or provide supporting documentation that demonstrates that’s true.
It Makes Negotiations Easier
When negotiating with sellers, having a preapproval letter can work in your favor. It helps separate you from buyers that also plan on using a mortgage to finance the purchase but haven’t taken this critical step. Essentially, the seller can see that your financing is in order, whereas that isn’t the case with buyers who aren’t preapproved.
Plus, getting preapproved can make you competitive against cash buyers, as it shows your financial life is in order and that a lender will likely fund the home loan. Usually, the most appealing feature of cash offers is that there isn’t the risk of a lender choosing not to fund a loan. However, if a cash buyer puts in a similar or just slightly lower offer, the preapproval letter may provide the seller with enough reassurance for them to select you instead.
