Pre-Approvals are more accurate than pre-qualifications
A pre-qualification is an estimate based on information that you provide and can be useful in helping you understand a ballpark budget but is NOT official. Pre-approvals on the other hand are commitments from lenders to a potential borrower. Based on your bank statements, tax returns, verified employment and credit reports, lenders determine a loan value you are qualified for. While both of these help aid you in your home buying journey, a pre-approval is needed for a mortgage loan.
Identify credit problems
Because a pre-approval pulls your credit report from the three major credit bureaus, they can identify issues with your credit that you may not have been aware of. Issues with credit can delay (and oftentimes stop) the loan process; taking care of these issues early on can save you time and frustrations in the long run.
Finding the perfect fit
Getting a pre-approval allows you to look for homes that are affordable and realistic for you, falling within your price range. This can save time and help you avoid heart break. Often times, buyers start out looking at properties they can’t afford, fall in love and realize it is out of budget. A pre-approval helps you avoid this and gives you insight into what price range you should be looking at to find your dream home.
When you have a pre-approval, your whole process should be quicker and easier. Because you know your price range, your real estate agent will be able to show you homes that they know you can afford. This improves your relationship with your agent, and you can breathe easier knowing he/she is putting all their energy towards finding your future home-sweet-home. You also may be able to close on your dream home faster as sellers look for pre-approvals to feel confident in buyer’s abilities to receive financing.
Understand the costs
Buying a home isn’t as simple as a down payment and recurring monthly mortgage payments. There are real estate taxes, homeowners insurance and other miscellaneous costs and fees that are included in your closing costs. These are identified during your pre-approval so there are no surprises later on.
Pre-approved buyers are more likely to win in a multiple offer situation if the other offer(s) are coming from buyers with only a pre-qualification letter. Buyers find confidence in knowing that a lender has pre-approved you for the financing, saving them a hassle down the road.