It’s a buyer’s market out there, and with the healthy inventory of available homes, combined with record-low mortgage interest rates, it is an optimal time to buy. However, just because it is a buyer’s market doesn’t mean you can breeze in and get any home you want. The truth is, lenders are even more conservative today with their lending than they were just a few years ago. So here are a few reasons why you should take the time to get pre-approved for a loan before beginning to look for a home and the difference between pre-approval and qualified:
Pre-Approval vs. Qualified
Being pre-approved for a loan means a lending institution went in, checked your credit and verified your income, and determined the actual amount that institution is willing to lend you for a mortgage. The process to get pre-approved is the same you would take to get a mortgage – it just happens before you start looking for a home. Qualified simply means that based on a soft credit inquiry, it looks like you could possibly qualify for a loan – because there was not a real inquiry into your credit or an examination and verification of your monthly income, being ‘qualified’ carries no real weight with a lender or seller.
Why You Should Get Pre-Approved
Pre-approval shows you are serious.
In this economy, sellers are acutely aware that banks are being conservative with their lending. Therefore, they are just as apprehensive about having a potential buyer’s financing not come through as the buyer themselves may be. By getting pre-approved and receiving a banks’ pre-approval letter, you are demonstrating that you are serious about purchasing.
Pre-approval establishes your spending limit.
Your pre-approval letter will put into concrete terms exactly what you can afford, according to the bank. This not only makes you an informed, responsible buyer, it streamlines your house search as you know ahead of time exactly what price range you need to be looking in for a home.
Pre-approval gives you power.
Having a pre-approval letter means you are approved for a loan from a lender. This demonstrates that you have the ability to purchase a house, and that the purchasing process will go smoothly and more quickly since you’ve already covered the ground work on the financial end. Pre-approval also gives you the advantage over other buyers who haven’t been pre-approved and who may be competing with you for the same property. Lastly, pre-approval gives you negotiating power.
Pre-approval gives you confidence.
Getting pre-approved ahead of your home search gives you absolute confidence that you will find a home that suits your needs because you know exactly what price range you’ll be in, and what kind of home you can afford in that price range. Pre-approval removes the anxiety of questions like ‘can we really afford this?’ or ‘will I be able to get the kind of home I want?’ By removing the anxiety, you’ll be able to actually enjoy your home searching process – and that’s the way it should be.