Before you fall in love with a home, you should ensure that you qualify for a mortgage so you have the peace of mind of knowing that your financing has been arranged.
Getting pre-approved for a mortgage should be the first step in your home search process. Not only will this help you determine how much money you can spend on a house, but it will also help convince sellers that your offer is serious. In fact, there are some sellers who will not accept an offer unless it comes with a pre-approval letter from a well-known lender.
A pre-approval can tell you how much you will qualify for, hold an interest rate while you shop, and help avoid pitfalls when it is time to buy so do not miss this important step in your home search process.
A pre-approval is not a binding commitment, but rather an indication that the lender is willing to extend a mortgage to an applicant once a suitable property has been found and secured via a real estate contract. It is usually valid for 90 to 120 days. The final decision is generally subject to certain conditions being met before the mortgage is finalized such as: the appraisal of the real estate is high enough to protect the lender in the case of default, the property title is clear and the property meets inspection standards, plus a number of other factors.
Even though you have been pre-approved by a lender, it is best practice to include a condition of financing in the purchase agreement to give you time to gather your documents and the lender time to review and give final approval to your application. Once you have a signed purchase agreement, the lender will require written income verification and proof of down payment, as well as proof the title is clear, the property meets inspection standards, and the appraisal of the property is high enough to protect the lender in case of default.
As soon as you receive pre-approval, you will be in a solid position to make an offer on your preferred house, and motivated sellers will be much more inclined to accept your offer. Your mortgage pre-approval letter can make the entire process go more smoothly. The pre-approval letter can also place your offer ahead of others that are comparable. After all, the process of closing on a home can be long and tedious, especially for a seller who needs to move quickly. Therefore, if the seller has to choose between accepting two similar offers and yours is the only one that comes with a mortgage pre-approval letter, the odds are high that you will be the one who ends up signing on the dotted line.