Getting preapproved is the true beginning to any serious home search. Unlike pre-qualification, the preapproval process takes your full financial picture into account in order to develop a better estimate of the home loan for which you are eligible. With this information, you’ll be able to determine your housing budget, which is necessary in order for your real estate agent to find great property options that meet your requirements without blowing your financial outlook.
With markets throughout the country becoming increasingly competitive, buyers who begin the search without a preapproval from a qualified lender are at a real disadvantage when placing an offer on a property. Without a prearranged financing solution, many sellers will disregard your offer completely, which eliminates your chances of purchasing the property of your dreams.
Luckily, there’s no reason to go forward with your property search without a preapproval. Let’s take a closer look at the preapproval process, as well as what it will take to get your housing search off on the right foot.
So, what is the real difference between preapproval and prequalification? Why should homebuyers rely on one over the other?
When entering the real estate world, particularly for the first time, you’re likely to hear references to both preapproval and prequalification, but they are two very different things.
First, there is prequalification. With a few simple answers from your own perspective about your financial outlook and absolutely no real proof, a lender will provide you with a very rough estimate for the home loan for which you may be eligible. This is strictly an estimate, and is, by no means, a guarantee of your future loan’s actual amount.
On the other hand, there is preapproval. This estimate takes into account all of the information which you’d need to provide to apply for the mortgage in order to give you a much better budgetary estimate for your potential home loan. While neither is absolute, preapproval provides a much clearer estimate to your financial prospective.
What documents will potential homebuyers need to submit in order to get preapproved for a home loan?
According to Investopedia, getting preapproved will require proof of your entire financial outlook. The first step is proof of income. The past two years’ W-2 statements, as well as pay stubs to outline your income this year, are a good place to start.
Next, proof of your assets is required to show the availability of funds that you plan to use as a down payment and to cover closing costs. Depending on your type of home loan, your potential down payment could vary. A hard credit pull is necessary to weigh your financial history and current outlook, while a letter from your employer is needed to prove current employment status and salary.
Finally, identification documentation and additional information as requested by the lender will finish up your preapproval packet and start your path towards a personalized loan estimate.
Can preapproval give homebuyers an edge when placing an offer on a great property?
Getting preapproved gives you a clear reference to prove your intent of purchasing property to sellers and their agents. According to Bankrate, shopping for a home without preapproval is akin to going to the grocery store without your wallet. Without a clear picture of your budgetary restrictions, it is difficult for sellers to take your offers seriously, and, therefore, other prospective investors will have an edge over your submittal.
Eliminating this edge and getting preapproval not only gives homebuyers an edge, but, in the current market, it is often a necessity for seriously competing with other offers in the real estate field.
What are the biggest advantages of receiving a preapproval prior to beginning a search in the wild world of real estate?
Using the experience of your lender to provide you with a clear outlook of your budget can be a frightening process to some buyers. After all, not being approved for the loan for which they believed themselves to be qualified can be a heartbreaking experience.
However, by using the preapproval process to accurately assess your budgetary restrictions, you can avoid those properties which you simply can’t afford and lead a more realistic housing search. The biggest advantage of getting preapproved, apart the ability to create more serious offers on properties, is the true knowledge of your budget and how much home is possible within your financial constraints.
For more information regarding the preapproval process and beginning your search for a new home, depend on the knowledge and experience of your realtor or financial institution.
Jeff D. often writes about Longhorn football, Italian cooking, and Leander homes for sale.