When it comes time to buy a home, the first step is talking with a lender about financing. Some buyers get pre-qualified, while others will take a bigger step and get pre-approved. "What's the difference?" you ask. I can explain!
Pre-qualified buyers are those who have talked with the bank or lender and provided high level information about their finances. The bank or lender provides an estimate of the borrower's potential loan, but there is still a process for finalizing the loan through a credit check and more extensive review of the borrower's personal finances.
Pre-approval means that your loan application has gone through this extensive procedure, reviewing all your financial information and your credit history. The lender decides how much money they believe you can borrow and pay back with interest.
Why should you get pre-approved?
Here are three excellent reasons to get pre-approved before you begin your home search:
Pre-approval provides you with buying power; you'll know how much you can afford. You can narrow down your search to homes within your budget, saving you time and making your ownership dreams come true even sooner!
A pre-approval letter from a lender gives you an edge when you make your offer. There's no doubt that the market is competitive, and with multiple offers being presented, being pre-approved for financing tells the seller that you are serious and ready to make your move.
Pre-approved buyers can sometimes close escrow more quickly since the financing portion of the buying process is nearly completed. Factors like interest rates or points may vary in the time from pre-approval to when you find your perfect home, but the big part of the home financing process is completed with pre-approval, and that can help move things quicker in the final stage of buying your new home.
Getting pre-approved is an important step in the home buying process. Your financial institution will be glad to discuss the process and help you get started!