Do You Need PreApproval
When you are planning on buying a home, there is one question that some homebuyers ask: "Do you need a pre-approval to buy a house?" The short answer is no, you do not need a mortgage pre-approval; however, most real estate agents and home sellers will require that you have one.
In this article we will explain why getting a mortgage pre-approval is the most important step in the homebuying process. While you may not need a pre-approval, it's highly recommended to get one. Let's dive into why that is.
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Why you need a mortgage pre-approval:
- A mortgage pre-approval confirms your ability to purchase a home.
- Home sellers and real estate agents almost always require a pre-approval letter.
- Getting Pre-approved gives you an accurate idea of your down payment and monthly payment options.
- The pre-approval process can help identify the lowest rate and fee loans.
- Not having pre-approval can potentially derail the home purchase process.
Understanding Mortgage Pre-Approval Process
To determine your eligibility the lender will request your income and asset documents and need to access your credit report to verify eligibility.
When requesting your credit report some lenders will use a soft pull credit inquiry which does not hurt your credit score.
When the lender reviews your income and asset documents along with a credit inquiry the lender will issue a mortgage pre-approval or denial.
When you obtain a mortgage pre-approval the lender will provide you with a written statement confirming your eligible purchase price that you are pre-approved for.
Obtaining a mortgage pre-approval letter puts you in a stronger position as a buyer and has several significant benefits.
How does a mortgage pre-approval letter help me when buying a home?
A pre-approval letter sends a definite message to sellers that you have the financial capacity to purchase the home.
In today's marketplace, most serious homebuyers present these pre-approval letters to home sellers when they make an offer to purchase the home.
If you do not have a mortgage pre-approval, and the seller has other offers with pre-approvals, the seller will most likely select the offer to purchase that is pre-approved.
Benefits of being pre-approved for a mortgage
- Motivates home sellers that you can purchase the home.
- Gives home buyers a realistic estimate of down payment and monthly payment requirements.
- You can shop multiple mortgage pre-approvals to find the lowest rate and fee home loans.
- You can speed up the loan closing process because the lender already has reviewed and pre-approved your loan.
- Identify unknown credit issues that may lower your credit score.
Risks of Not Having Pre-Approval
While it is still possible to purchase a home without a mortgage pre-approval, the process of buying a home will be more challenging for many reasons.
Sellers may not consider an offer without a pre-approval
In a sellers' market, where there are more homebuyers than homes on the market, many sellers will only accept offers to purchase that have a mortgage pre-approval or cash offer only.
This means that if you do not have a mortgage pre-approval, then the seller will not consider your offer.
Missing Out on Your Dream Home
If you find that perfect home, but you are not pre-approved, the home seller may act fast and accept another offer from a pre-approved homebuyer.
Inability to compare multiple lender's loan offers.
Without a mortgage pre-approval it is almost impossible to compare real loan offers from multiple mortgage lenders.
A one percent lower interest rate is equal to ten percent more purchasing power.
You can request multiple lenders to issue a soft pull credit pre-approval to compare loan estimates.
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Conclusion
While you do not have to get pre-approved to purchase a home, it is almost always in your best interest to get pre-approved. In a sellers' market, most home sellers and real estate agents require a pre-approval letter in order to work with you.
In addition, getting a mortgage pre-approval gives you the ability to shop loan offers and budget according to the down payment and monthly payment requirements.
If you are serious about buying a home, then getting a mortgage pre-approval should be at the top of your list.
Take that first step towards securing your dream home—start the pre-approval process today.
