Before you start searching for a home, there is one thing you absolutely must do: get a preapproval for a mortgage. Without a preapproved mortgage, it may make finding your dream home a lot more difficult. Even if you are certain that you will be approved for a mortgage, it helps to be sure by obtaining a preapproval first.
There is an important distinction between a prequalification and preapproval that you should be aware of. A prequalification typically doesn’t involve a credit check. Instead the lender simply relies on the information that you provide about your income, credit history, and expenses. You give this information to a loan officer and they provide you with an estimate of how much you might be able to borrow for a mortgage loan and at what rate.
On the other hand, a preapproved mortgage involves a more thorough check of your financial information and includes a credit check. You must also provide documentation that verifies your income. A preapproval guarantees that the lender will allow you to borrow a specific amount. You’ll also be able to lock in your interest rate in most cases when you get preapproved.
Now that you know the difference between prequalification and a preapproval for a mortgage loan, here’s why you want become preapproved before house hunting:
Most sellers won’t even start negotiations with you unless you have been preapproved for a mortgage. Real estate agents and their seller clients don’t want to waste time on buyers who aren’t serious or don’t have the ability to follow through with an offer.
Mortgage rates are always changing. The last thing you want to do is to start your home search only to find that rates have increased, which will cost you more money. When you lock in your mortgage interest rate with a preapproval, you’ll receive a guarantee that your rate won’t rise beyond what you’ve already locked in.
The biggest advantage to having a preapproved mortgage is the fact that you can act right away once you find the right home. When you are preapproved for a mortgage loan, you don’t have to wait for a lender to verify your information because you’ve already completed that step.
When you only obtain a prequalification, it’s possible that you won’t actually be preapproved for the amount you want to borrow. As a result, you could end up actually being denied for the loan you need causing you to miss out on your dream home.