5 Advantages to Securing an Upfront Preapproval

Jun 10

One of the most strategic moves a home buyer can do prior to making an offer on a property is to have their ducks in a row in regard to lending. Meaning, prior to submitting a purchase contract to a seller, a buyer should come prepared with a fully executed preapproval letter from a qualified lender.

A preapproved mortgage loan is the lender’s commitment to lend to a buyer, noting specifically the amount of a loan the buyer has been approved for. In this process a buyer submits his or her personal financial information, such as their income, and any current debt and assets, to an underwriter. The underwriter uses mathematical formulas to prequalify and approve the borrower’s loan request with certain specifications. Because the lender is committing to the loan amount and interest rates up front the buyer knows they have their financing established prior to shopping for their home. This process provides the buyer with certain advantages:

Selecting the best loan product. Working with a qualified and experienced loan officer before looking at houses gives the homebuyer plenty of time to decide what kind of mortgage product works best for his or her financial goals. Once the buyer decides on the kind of loan that works for his or her situation and has been pre-approved for it, the homebuyer can then focus on finding their dream home. Your loan officer will identify factors such as whether you plan on being in the house for a long or short time, and whether a shorter-term fixed rate product versus an adjustable rate mortgage (ARM) best suits your needs.
Establishing an advantage. A pre-approval letter gives the homebuyer a great edge in a competitive selling market which can often lead to a multiple-offer situation. Sellers prefer working with buyers who are pre-approved; they don’t want a deal to fall through because the purchaser cannot get sufficient financing. In today’s market sellers often require a preapproval letter be submitted from buyers with their purchase offer. An offer with a full pre-approval letter carries far more weight than an offer with only a pre-qualification letter (or no letter at all). In fact it’s not unusual for sellers to accept offers of lower dollar amounts from pre-approved buyers over buyers who have not been through the process, even if their offer is higher. With pre-approval, sellers have more confidence the deal will go smoothly.
Establishing a price range. The key here is “know before you go.” Getting pre-approved for a mortgage enables the homebuyer to determine, prior to house shopping, how much of a loan he or she qualifies for, thereby establishing their price range. The real estate agent and buyer can then focus on looking at homes in an appropriate price range.
Being comfortable with the loan amount. By taking the time to seek pre-approval, the homebuyer selects a comfortable loan amount. In many cases, buyers may qualify for mortgages that are more expensive than what they feel comfortable committing to for the long-term.

Saving time and heartache. Nothing is worse than having your heart set on your dream home only to find that what you thought was financially possible on paper doesn’t really fly in reality. The preapproval process will help identify hidden costs to lending and the purchase that a normal consumer would not have anticipated, such as closing costs, title insurance, or origination fees. Your dedicated loan officer will help explain what some of these costs are and how it will affect the life of your loan.