If you are thinking of purchasing a home, then it is essential to get a pre-approval first. Getting a pre-approval is a necessity mostly because of the requirements of higher credit scores and down payment.
In simpler words, a pre-approval is the process wherein your lender appraises your financial situation and gives you an approved amount to borrow. It helps making the home buying process easier.
There are two types of pre-approvals, which you have to fill in a form and apply, supported by requisite documents. These pre-approvals are-
Full Assessment pre-approvals: This is a thorough assessment of your credit report and documentation that is carried out by the lenders’ credit department. A full assessment will involve a lot of probing from your lender and a clarification of all the documents submitted. This type of approval takes a few days to be issued due to the rigorous checks.
System- Generated Pre-approvals: In this case, pre-approval relies more on the details that you submit along with your application. However, documents that are submitted via this process does not go through full assessment. Pre-approval in this case is often system generated and can be obtained within a few hours or on the spot!
Benefits of Getting a Pre-approval
Pre-approvals have a number of benefits. Some of the main benefits are as listed below-
- Validity: Most home loan pre-approvals are valid for upto 3 months, so it’s worth the consideration as it gives you the chance to look out for properties within your price range and then decide to take the loan. Furthermore, it gives you more time to get your documents for approval in place.
- Borrowing Knowledge: It can be confusing to understand how much you can borrow for buying a home. A pre-approval can help you determine the amount and find out the maximum purchase price as well as the maximum loan you can take out. It also helps you to determine how much you will be able to repay if you do take out a loan.
- Shop with Confidence: With a pre-approval in place you can move on boldly in the real estate market, narrowing down your options while you look for your dream home in the market.
- Trustworthiness: When you get a pre-approval, sellers see you as someone who is trustworthy and serious when it comes to home buying. If you get a pre-approval chances of getting a home loan seems greater to lenders as well.
- Negotiating Power: Pre-approvals give you extra leverage to negotiate when you are out house- hunting
- Time-saver: You do not have to go house-hunting blindly anymore. You can save yourself time and effort by eliminating options that are beyond your price range.
Though pre-approvals give you an idea of how much you can spend, it does not mean that you have the loan in hand. You need to get all your documents in place. Pre-approvals can be affected by individual circumstances and also factors beyond that are beyond your control. So, to help you with getting your pre-approvals right, here is an infographic that explains the procedure and requirement that is required. Let’s take a look at it.