The Upside of Having a Mortgage Pre-approval

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Reasons Why You Need a Mortgage Pre-approvalPosted by Joe Samson on Thursday, September 8th, 2016 at 1:57pm.

When making financial decisionsthat will heavily impact your life,such as buying a home, it’simportant to be informed beforejumping into a decision and makingsure ahead of time that you areready to buy a home.

This means asking questions and using all resources available to understand more about the commitment ofpurchasing a property. To gain this understanding, the first (and arguably the most important) step is todetermine how you will pay for it. While paying all cash is ideal because it eliminates the need to payinterest, this isn’t something most people can do. This is when the majority of home buyers turn to obtaininga mortgage so they can secure the funds they need to purchase a home.

Fortunately as a buyer you have many mortgage options available to choose from. You will find that each ofthese are different, as some will require more money down while others may have strict requirementsdependent on their financial history. To determine which is best for your situation, getting pre-approval for amortgage is crucial. In fact, doing this before you ever look at homes is highly recommended by real estateagents and it can even help streamline the entire buying process.

With awareness of the fact that you need to get pre-approved for a mortgage, the next step is to understandmore about the process of how to go about getting a mortgage pre-approval. The following guide will helpyou get started and anticipate what to expect. The information you learn through this can help you have amore enjoyable experience and smoother transaction in the future.

Reasons for getting a mortgage pre-approval:

1. Negotiate Better Terms & Price2. Build Trust & Win Multiple Offer Situations3. Take Possession of Your New Home Faster4. Get Your REALTOR®’s Attention & Priority5. Seller May Request Proof of Financing6. Establish a Laser Focused Search 7. Avoid Disappointment and Frustration8. Interest Rate Increase Protection

What is a Mortgage Pre-approval?

Each lender has a specific set of guidelines that they use to determine whether a borrower will get approvedfor a mortgage. These guidelines are more in-depth than those associated with a pre-qualification, as that onlyinvolves a superficial look at you as the borrower. Due to the fact that requirements can be so different witheach lender, it’s easy to see why doing your own calculations is not recommended. An official pre-approval means that the lender has gone through your financial information and qualified you as a borrower.This will give you a more accurate idea of what your interest rate will be, as it will be based on your specificinformation as a borrower.

It’s always recommended to get pre-approved before you ever start looking at homes so you have amore realistic and accurate idea of what you can afford. In addition to saving money, it’s one of the mostbeneficial things you can do as a responsible buyer. The length of time it takes to get pre-approved will is

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usually no more than a few daysonce you have provided all of thesupportive documents

Most mortgage pre-approvals andinterest rate holds are guaranteed for aperiod of 3-4 months, which is why it’srecommended to start the process up to120 days before you’d like to purchasea property. By taking care of this earlyyou will be able to look at homes withmore peace of mind and avoid thepotential stress of dealing with offernegotiations at the same time.

Before filling out any paperwork, it’simportant to gather financialdocuments that support your ability toafford a home. This may includepaperwork proving income, proof andsource of down payment funds, assetinformation, and liability information.In addition this, you will need toprovide personal information such asyour social security number or SINnumber, so the lender can review yourcredit score.

How Do I Get Pre-approved for a

Mortgage?

To get the pre-approval process started,you will need to speak with anexperienced mortgage broker (orlender) who can help you. If youaren’t familiar with any professionalsyou can rely on, then ask yourREALTOR® for recommendations.Once you meet with the mortgagebroker ask them questions to help youlearn more about their rates andprograms. If you aren’t interested ininterviewing different lenders, then goonline and research banks or mortgagebrokers.

...if you work with a real estateagent who doesn’t mentiongetting a pre-approval letter at all, then they may not have the expertise that’s so important in thistype of profession.

While doing this research is pretty straight-forward, it’s important to keep awareness of lenders that makethings seem “too easy”. If you speak with any lender that claims they can provide you with a pre-qualification letter without taking a look at your financials, do not go with them. Also, if you work with

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a real estate agent who doesn’t mention getting a pre-approval letter at all, then they may not have theexpertise that’s so important in this type of profession.

How Much Mortgage Can You Afford?

With most buyers, there’s a considerable difference between what they think they can afford and what theyactually can afford. Getting the mortgage pre-approval will point you in the right direction, as it willgive you the best idea of what you can realistically afford. However, it’s important to be aware that somelenders approve buyers for less than they want to spend while others will approve buyers for more. This iswhen it’s important to be self-aware of your finances and what you’re genuinely comfortable with spendingon this significant purchase.

The hard numbers you receive from the lender will be a great starting point that allows you to narrow downyour search for homes. Knowing your price range will give you an idea of how many rooms you can afford,which area you might want to live in, and if you can genuinely afford what you want. For most people, this iswhen shopping for a home becomes more real and they can finally picture themselves as homeowners.

By taking the time to get pre-approved, you will ultimately be helping yourself avoid many pitfalls thatfirst time buyers run into. For instance, knowing your financial position can help you avoid looking at (andfalling in love with) homes that you simply cannot afford. When you’re ready to start looking, analyze theapproval letter and monthly payment information provided by your lender. Once you’ve determined themaximum that you’re content with, the down payment and closing costs can be calculated so you can look athomes within your ideal budget.

Obtain a Mortgage Pre-approval Letter

A pre-approval letter is contingent on you as the borrower keeping your credit score and finances the sameuntil you close. This is why most lenders warn their clients against making large purchases or taking out newcredit cards, as these types of transactions can affect their credit score and financial situation. As long as theydo this, the pre-approval letter will play an important role in the buying process. Sellers will appreciatethe fact that a qualified buyer is looking at their home, and if you end up competing with another buyer, thiscould be what helps you secure the property. The pre-approval essentially shows that you are qualified andserious about purchasing.

Negotiate Better Terms & Price

One common and frustrating situation for sellers is dealing with buyers who aren’t qualified to buytheir home. This wastes time because it generally results in the deal falling through and other potentialbuyers moving on. As a pre-approved buyer, sellers will appreciate the fact that you’ve proven your financialbacking. Beyond that appreciation, this approval can act as a negotiation tool because you’ve already gonethrough the work of proving your ability to buy. This entices the buyer to negotiate with you, as they won’thave to worry that the deal will fall through because you won’t get approved for a mortgage.

Your pre-approval may also persuade the seller to accept your offer rather than a higher one from a buyerwithout the same approval. In addition to this, an eager seller may be willing to change their terms of the saledue to the fact that your purchase would be a done deal. With the pre-approval being such a strongnegotiation point, it’s easy to see why top real estate agents request that their clients take care of thisbefore they are shown properties.

Build Trust & Win Multiple Offer Situations



The real estate market is always changing, therefore you can never anticipate whether or not a home is goingto attract offers from multiple buyers at the same time. However, it’s important to be prepared just in case thissituation does occur. A pre-approval letter from your lender is just what you need, as this will make youstand out. Sellers see this letter as security, not only because you have proven that you can obtain financing,but also because you’ve proven that you’re serious about buying the property. As a result, you will be one ofthe top candidates they consider accepting an offer from.

Take Possession of Your New Home Faster

Finally your offer has been accepted; what next? If the home inspection turns out to not show any issues, thenyou’ll likely anticipate moving into your new home. While packing your bags is a great way to get started,there will be some waiting time before your new keys are in hand. Most of this wait time is the sellerdeciding whether or not to accept your offer, which will generally be minimized with your pre-approvalletter. Even more beneficial is the fact that your bank will already have the paperwork and documents that areneeded to approve the loan, so you can close on the home as quickly as possible.

To gain insight on what happens after your offer is accepted, the lender will need to have all your informationin order to determine if you can afford the property. Having already done this legwork to get the pre-approval, your lender will be able to move on to requesting an appraisal on the property. Once everything isin order, you will finally be able to close on the home, likely without having to wait the 45-60 days that mostaverage buyers do.

While choosing to get pre-approved for a mortgage is your decision, it’s a smart and beneficial move on yourpart. If you are serious about buying, it’s the very first move you should make. A top real estate agent will tellyou the same thing, making it something you don’t want to wait to take care of.

Get Your REALTOR®’s Attention & Priority

Getting pre-approval for a mortgage is not something that is guaranteed. Even if you think your finances arein order and you’ll be approved for a specific amount, you won’t know for certain until you have that letter inhand. To avoid frustration and stress for you, your REALTOR®, and the seller, don’t ask to be shownproperties until you’ve taken time to get your pre-approval taken care of. Real estate agents want tospend quality time showing you potential homes you could buy, not homes you may only dream of living in.

If you get pre-approved for a mortgage, you will have the attention of your real estate agent if they arecaught between deciding which client they can make time for. By showing that you are ready and able to buy,your real estate agent will know they aren’t wasting their time or yours by showing you properties.

Seller May Request Proof of Financing

There are many additional reasons, aside from time savings, why real estate agents request their clients obtainpre-approval before showing them homes. One of the most common is because the seller often requires it, asthey don’t want non-qualified buyers walking through their home. This is most common with luxury realestate, although this seller preference is seen with budget-friendly homes as well. For these reasons, don’ttake it personally when you are requested to have pre-approval done before you’re allowed to view a home.

An added benefit of having this done is that you’ll be in a better position to present an offer on a home thatyou would like to buy. Sellers take buyers who have pre-approval letters readily available much more

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seriously because they have shown their ability to pay. Without this, the seller would never know if youwould be able to get financing for their home or if the deal with go through.

Establish a Laser Focused Search

You’re ready to buy and don’t want to waste time looking at homes that may be outside of what you canafford. By taking care of financing before you search, you’ll have an accurate idea of the amount you canspend on a home. This is due to the fact that your lender will analyze bank statements, pay stubs, your creditreport, and all other necessary financial information to determine what you can borrow. With that informationyou can establish a much more accurate price range so you can search for homes you can afford withconfidence.

One additional highlight of knowing your budget is the fact that you will be able to narrow down youroptions for properties. This will give you a limited selection to choose from so your search can be expedited.Another advantage of knowing how much you can spend is that you will be less likely to find properties youlike but cannot afford. You will only see homes that fit in your budget so the entire buying process isoverall more enjoyable and efficient.

Avoid Disappointment and Frustration

When you think about applying for a pre-approval, you may be intimidated by all that’s involved. Fromdigging out your tax returns to proving your income, it can be a lot to take in at once. However, this shouldn’tbe a reason to postpone doing the pre-approval until you actually find a home that you like. To avoiddisappointment and frustration, you should embrace your inner-strength and put all of your documentstogether. Once you have done this, you’ll likely find that the process isn’t as intimidating as you thought itwould be.

After the application is completed and you’ve been pre-approved, you will know exactly what your realisticbudget for a home and taxes is. This means you won’t waste time looking at listings that are far outside ofyour budget, such as homes that cost $400,000 whereas you’re only approved for $350,000. Ultimately thissaves you from disappointment when home buying, making it clear why real estate agents request you do thisfrom the very start. By doing something as simple as applying for pre-approval now, you will do yourself agreat service that will make shopping for a home easier down the road.

Interest Rate Increase Protection

Most pre-approvals for mortgages provide buyers with a 90-120-day rate guarantee to protect them inthe event that rates increase when searching for a home. This essentially allows you to lock in a rate so youcan shop for homes knowing you won’t see an increased rate surprise when you’re ready to buy. However, ifinterest rates decrease while you’re shopping, most lenders will honour that rate instead. If no other reasoncompels you to obtain a pre-approval, this “lock in advantage” may be just what does.

Final Thoughts

Buying a home is a huge financial decision and therefore should be treated with careful consideration. Realestate agents understand this, which is why they are likely to request their clients take care of this before theyare shown homes. Walking through properties before doing so will be pointless as well as a waste of time forboth you and your agent. If you are serious about buying, then prove it by obtaining your pre-approval



as soon as you can. Once you know how much you can afford, you’ll find that buying a home is lessstressful and you’re able to enjoy searching with confidence.

Real Estate

The Upside of Having a Mortgage Pre-approval