Ready to become a homeowner. Your first milestone is getting a mortgage.
But here’s the thing: You’re committing to spend hundreds, even thousands, of dollars every year for the next 15 to 30 years. So it’s important you put in as much effort as possible to get the best deal. Getting pre-approved for a mortgage is one of the best ways to make your home-hunting process easier.
Let’s take a closer look at the six most important benefits of getting mortgage pre-approved:
1. Determining Price Range
Mortgage pre-approval is a lender’s conditional commitment to lend you a specific amount for a home purchase. Lenders will assess numerous factors, such as:
- Your finances (debts, income, assets)
- Credit score
- Available budget
After reviewing all the documents, they will give you a conditional “yes” to lend up to a certain amount. You receive a pre-approval letter detailing the potential loan amount and lending conditions. This letter will help you determine your price range.
Once you’ve got a conditional figure, you will be able to shortlist properties that fit into that budget. This will save you both time and energy.
2. Become an Attractive Buyer
For a minute, think of the mortgage process from the standpoint of the seller. A seller receives multiple loan applications every day – how do they know which buyers want to go through with the loan or which will get cold feet? Applying for mortgage pre-approval tells the seller that you’re a serious buyer.
A seller would know that your offer is valid and that you have enough funds to go through with the process. This upper hand will help you secure a better deal.
A pre-qualified mortgage letter will help you get your foot in the door.
3. Stronger Negotiation Position
Similarly, as a pre-qualified lender, you are more likely to grab a seller’s attention. You will have some flexibility on terms and pricing versus buyers who have not been pre-approved. A seller might agree on a lower interest rate and a longer mortgage term.
4. Faster Loan Closing
When you get mortgage pre-approved, the first part of your homeownership journey will be done. A seller won’t spend days or weeks verifying your credit score or other information. A pre-qualified letter can help fast-track the loan closing process.
5. Opportunity to Improve Credit Score
During mortgage approval, lenders or financial institutions run soft credit checks. This is an excellent opportunity to understand your credit position and, if possible, take steps to improve it.
Here are some steps you can take to improve your credit score for better mortgage rates:
- Pay off credit card bills.
- Avoid taking on more debts while your mortgage application is in process.
- Don’t max out your limits on credit cards.
- Avoid getting too close to the credit limit.
- Build a long credit history.
6. Preparation and Planning
Bidding wars can seem intimidating, but if you want to get your ideal home, it’s important to get into the process. The mortgage pre-approval process will help you prepare and plan for the actual mortgage process.
