Advice For Buyers: Get Loan Preapproval
Few people can buy a home for cash. Most buyers, especially first-time purchasers, require a loan. Real estate financing is not just about getting a loan, however, it’s about getting the loan that's right for you - the mortgage with the lowest cost and best terms. Also, pre-approved buyers are in a much stronger negotiating position when making an offer on a home.
How To Get Preapproved For A Mortgage
I recommend starting the mortgage process well before bidding on a home, and can refer you to a reputable mortgage broker who’ll shop around for you. There are many mortgage options and lenders, so it pays to shop around: by researching loan options, you will find which programs best meet your needs and how much you can afford.
Preapprovals are also recommended because purchase forms require buyers to apply for financing within a given time period. By meeting with loan officers in advance and identifying mortgage programs, it won't be necessary to rush into a financing decision that may not be the best option.
What is Preapproval?
"Preapproval" means you have met with a loan officer, your credit files have been reviewed, and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a preapproval letter which shows your borrowing power.
Although it is not a final loan commitment, the preapproval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained.
How Do You Get Preapproval?
To get preapproval you must complete a written application and provide supporting documentation, such as recent pay stubs, rental checks and tax returns for the past two or three years (if you are self-employed). During the prequalification procedure, a loan officer will describe the type of paperwork required.
A loan officer will carefully review your financial situation, including your credit report and other information, then suggest programs which most closely meet your needs.
Doing your legwork and researching mortgages and lenders ahead of time, and getting a preapproved mortgage gives you a clear idea of what you can afford, tells sellers you are serious and means that you don’t have to rush the financing once you find a home that you want to buy.