If you are thinking about buying a home in the next few months, you’d be smart to get pre-approved for a mortgage now. The housing market is red hot, with homes selling in days and sometimes hours. With too few homes on the market there are often multiple offers. Anything that allows you to move quickly, make your offer stand out and appear attractive to sellers is a bonus. Plus, with two recent drops in interest rates, locking in at the new lower rates protects you should rates rise again.
So here are a few reasons it’s smart to get pre-approved for a mortgage.
Know how much you can afford.
When you get pre-approval for a mortgage you will find out the maximum amount you can borrow. This helps you narrow your housing search to only those homes within your budget. It will also determine how much your monthly or bi-weekly payments would be.
Make your offer more attractive.
When buyers are bidding on a home, often their offers come with conditions. Sometimes the condition is that the buyers must also be able to sell their own home. Often the condition is that the buyers will ultimately be approved for a mortgage. If you can present your offer without the condition of needing to secure a mortgage, then that is attractive to a seller. It makes you a less risky buyer for them. Buyers want to eliminate any factors that could derail a deal.
It doesn’t cost you anything to get a mortgage pre-approval. You’ll need to meet with a bank or certified lender and provide some employment and banking information, but beyond that there’s nothing required of you and no commitment to ultimately get your mortgage from that bank or lender.
Signal you’re serious.
Having a mortgage pre-approval in your pocket signals both to realtors and sellers that you are serious. It shows you have done the legwork in advance of viewing homes and you aren’t about to waste your time or theirs by bidding on a house you know you can’t afford.
No risk, only benefit.
Mortgage rate pre-approvals lock in one rate for anywhere from 60 to 120 days. If you are pre-approved at one rate and during that time period interest rates increase, you are guaranteed the lower rate. If they drop during that time, you will get the lower rate. In some instances, the mortgage pre-approval rate can be extended, but this depends on the institution.
Words to the wise
A pre-approval is not a final approval. If the bank decides that what you’ve offered to pay for the house is more than what it is reasonably worth, it may determine the loan for that property to be too risky.
If you rack up credit, apply for credit, change jobs or deplete your savings in the time between when you were pre-approved and when you bid on the home, the bank may rescind its pre-approval.
Documents you will need:
2. Proof of Income/Employment
3. Proof of Assets
4. Bank Statements
5. Debt Statements