If you’re planning to qualify for a loan and buy a home, you may have heard the term “pre-approval” and wondered if it was necessary. Well, loan pre-approval makes the buying process easier and can help you to be more successful when it comes to purchasing the home of your dreams.
So, what exactly is pre-approval, and how can it benefit you? Let’s discuss!
What is Pre-Approval for a Home Loan?
The term “pre-approval” refers to an evaluation process where a lender determines how much money they are willing to loan you for the purchase of your home. Generally, this figure is calculated based on a thorough review of your credit and financial histories.
What are the Benefits of Home Loan Pre-Approval?
Home loan pre-approval benefits buyers in the following ways:
Shows Buyer Intent
Provides a Strategic Advantage
Gives More Room to Negotiate
Helps to Approximate Budget & Monthly Payments
Sets Proper Expectations
Saves Time While House-Hunting...
...and During Closing
First, pre-approval shows a seller that you are serious about purchasing a home. It also lets them know that you can afford the property. This gives you an advantage over other potential buyers who may not have been pre-approved.
After all, sellers want to be sure that a buyer has the financial ability to purchase their home. Pre-approval assures them that you can.
In fact, sellers are more likely to accept offers from buyers who are already pre-approved for a loan. They’re also more willing to negotiate with you, since pre-approval shows that you’re serious about—and willing to—purchase a home. This offers you a strategic edge in a highly competitive “buyer’s market.”
Additionally, pre-approval helps you understand exactly how much you can borrow—and approximates your potential monthly payments. This will help you narrow down your search to find homes that fit your budget.
Plus, pre-approval can help you avoid the disappointment of finding a great home, only to realize later that you cannot afford it. By knowing your pre-approval amount ahead of time, you can more effectively spend your time shopping for a home—one that might realistically turn into your future home-sweet-home.
Finally, once you’ve decided on a home and the seller has accepted your offer, you can move quickly through the closing process. Since the lender has already reviewed your financials during the pre-approval process, finalizing the loan takes just a few simple steps.
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