You have decided to buy a home and are now in the process of applying for a mortgage. But before you dive in, it’s important to understand the benefits of pre-approval. Pre-approval from a lender means that you have been preliminarily approved for a loan based on your creditworthiness and other financial factors. It’s an important step in the mortgage process, because it gives you a good idea of how much money you can borrow and what type of interest rate you will qualify for.
The advantages of pre-approval begin with being able to shop confidently for a home within your price range. With pre-approval, you know exactly how much money you can spend on a home. This prevents buyers from overextending themselves financially, which is always wise financial planning. Furthermore, having pre-approval puts buyers in a better negotiating position when making offers on homes. Sellers are more likely to accept an offer from someone with pre-approval because they know that the buyer will be more likely to secure financing than someone without this assurance.
Another advantage of pre-approval is that it streamlines the mortgage process itself by ensuring that all paperwork is complete and correct when it comes time to submit an application for financing. This helps speed up the process so that buyers can close on their purchase faster and avoid potentially costly delays or rejections due to missing paperwork or incorrect information.
One final benefit of pre-approval is that lenders may be willing to offer better terms or lower interest rates on mortgages for buyers with pre-approved financing than those without this assurance. This means that buyers who obtain pre-approvals may end up saving thousands of dollars over the life of their loan by obtaining better terms than those who don’t take this step before applying for their loans. For example, if someone obtains a 30 year fixed rate mortgage at 4%, they could save around $21,000 over the life of their loan compared to someone who obtains the same loan but at 5% interest rate*.
In summary, obtaining pre-approval is an important step in the home buying process that can save time and money in both the short term and long term. It’s not only smart financial planning but also provides peace of mind as buyers shop for their dream homes knowing exactly what they can afford within their price range and what type of terms they may qualify for from lenders.
*Calculation based on $200,000 loan amount