The Pros and Cons of Applying for a Pre-Approved Home Loan
The Pros and Cons of Applying for a Pre-Approved Home Loan
Receiving mortgage pre approval is the ideal way to ensure you’re getting the ideal home loan, expediting the process, giving you additional negotiating power, and securing the lowest interest rate possible. It helps make sure you don’t miss out on anything important during this stressful time in your life.
Setting a budget and avoiding sticker shock
Purchasing a home is an important financial decision, so having clarity about how much house you can afford before starting shopping is essential. A lender will review your income, assets and credit history to help determine how much loan you qualify for.
Mac Cregger, senior vice president and division manager at Angel Oak Home Loans in Atlanta, recommends this method for determining what you can afford and your monthly payments before starting to look for a home.
Your loan officer will also review your credit report to help them determine if you meet the qualifications for a particular mortgage and how much money is necessary for a down payment.
A pre-approval letter will indicate the maximum loan amount you can borrow, though you are still free to shop outside that range if desired. This helps focus on realistic homes within budget and prevents you from falling in love with a house you cannot afford.
Pre-approved loans carry higher interest rates than regular mortgages, but it’s still much lower than the full market rate. Furthermore, it’s essential to remember that the interest rate you are approved for is only what the lender will grant you – not necessarily what you will actually end up paying once you close on your home purchase.
Don’t put off getting pre-approved because it will give you peace of mind and the chance to savor the home shopping experience. Furthermore, it could prevent an unexpected increase in interest rates that could occur during the process that would put you out of your price range and potentially derail a sale.
Show sellers you’re serious about purchasing a home and have the funds to complete the deal.
It isn’t necessary to have a preapproval letter in order to make an offer on a home, but having one does help you stand out from other buyers who may not have one or are unwilling to put in the extra effort needed for financing.
Furthermore, it gives you an edge in a bidding war where multiple offers are made for the same home, as well as giving you more bargaining power with the seller.
If you decide against making the purchase, it may be more difficult to get a refund from your pre-approval as the bank has already assessed your finances and determined what home loan amount you qualify for.
Always inquire your lender about the pre-approval process and what steps need to be taken if you decide against it. Furthermore, keep in mind that your loan officer will review every detail of your finances, such as any car loans made with credit cards that could impact your eligibility for a mortgage.