Advantages of Mortgage Preapproval
Real estate experts tell buyers that it's important to apply for a loan before shopping for a home. That’s true. But why?
And if you decide to apply early, do you know the difference between getting prequalified and getting preapproved for a loan? Is one better than the other or carry more weight? What are the benefits ofhome loan preapproval? Let’s find out the answers to these questions.
Benefits of getting preapproved
There are many advantages of getting preapproved for a home loan. Here are a few of the most common reasons:
- Finding your price range—When looking at house listings, you’ll know right away if it’s in your price range. This is one of the biggest benefits of mortgage prequalification as it adds a new level of simplicity to the process of purchasing a home.
- Shopping with confidence—Instead of dividing your attention between shopping and financing, you’ll be able to focus completely on the home’s features, benefits and price. It helps remove a certain amount of stress by narrowing down your options to those that may work better for you.
- Increase negotiating power—When you come to the bargaining table with a preapproved loan, the seller is more likely to accept your offer because they know you have the funding and are serious about purchasing. They can take the home off the market and place it into pending status with confidence.
- Close sooner—If you don't have to wait for the paperwork to be processed after making an offer, the lender may be able to speed up the entire mortgage process. Everyone wants a faster process when purchasing a home. This becomes a possibility when you prequalify for a mortgage loan.
Prequalification vs. preapproval
Now that you know the benefits of applying for a loan before house shopping, you need to decide if you want to get prequalified or preapproved. But what's the difference between being prequalified vs. preapproved for a mortgage, and what kind of a difference can it make for you?
Prequalification means you have given the loan officer information about your income, debts and savings. This allows the lender to conduct a quick analysis to ensure you have sufficient assets to purchase a house. The process also helps determine how much money you are eligible to borrow before applying for a loan. That makes it easier to know what price range you can shop for, too.
Preapproval, on the other hand, is when the lender reviews your application and credit report through the underwriting process. When an underwriter examines and approves your application, this typically carries more weight than a prequalification opinion. This has the potential to give you an upper hand over other buyers because it shows that you’ve done your due diligence and you’ve already started the process of determining what you’re approved for.
Sometimes, a lender preapproves a loan with conditions (requirements for property appraisal, copy of down payment check, rental history verification, most recent bank statements, etc.). These conditions mean that preapproval is no more binding than prequalification.
While prequalification doesn't bear as much authority as preapproval, the prequalification letter can be issued quickly--perhaps to satisfy a prospective seller while the loan officer gathers additional financial documentation such as tax returns. If this is something that you find yourself in need of, we highly recommend contacting your mortgage lender so that you can stay ahead of the game!
Mountain America is here to help
Applying for a loan at the beginning of the house-hunting process can help you determine how much home you can afford and make shopping easier. To get preapproved for a Mountain America mortgage loan, apply here.
