If you’re ready to buy a house, then you’re no doubt aware that you’ll need a mortgage to finance the purchase. But are you aware that you should get pre-approved for a mortgage before you make an offer on a house? In fact, in today’s market it’s essential to get a pre-approval or your offer is likely to be overlooked. Here’s what you need to know to make the process as painless as possible.
What is a mortgage pre-approval?
First of all, let’s start with the basics. A pre-approval does not mean that you will ultimately qualify for the loan you want. What it does mean is that a lender has reviewed your finances and has determined how much you can afford, the best type of loan for you, and what interest rate you can qualify for. They will then supply you with a letter that you can submit when you make an offer.
Why do you need a mortgage pre-approval?
In a competitive market, many buyers may be making an offer on the same property as you. In order for your offer to be taken seriously, the seller will want to know that you qualify for financing. You will be at a serious disadvantage if you don’t take the time to get pre-approved, and your offer will likely be rejected.
When do you need to get the pre-approval?
Ideally, you should obtain your pre-approval before you begin your home search in earnest. Once you’ve reviewed your credit reports and determined that you are financially ready for a home purchase, you can then seek pre-approval. Your pre-approval letter will be valid anywhere from 60-90 days. If you want to be particularly cautious, you can request a pre-approval six months to a year in advance of your future purchase to see what you will qualify for. Just be aware that you will need to do the process again when you’re ready to make an offer as your credit reports can change in that time.
Is there a difference between pre-approval and pre-qualification?
Though the terms pre-approval and pre-qualification are often used interchangeably, they are not the same. The difference lies in how in-depth the lender’s review process is. When you get pre-qualified, a lender makes a recommendation of what they can offer you based on the numbers you give them. In this case, the lender is not questioning the financial information you supply. However, when you get pre-approved, the lender is using your actual financial data to prove how much you can afford. They will verify all the information you supply before giving you the pre-approval letter.
How long does it take?
The pre-approval process can take as little as one day. However, if you have a complicated financial history, then the process could take anywhere from a few days to a few months. Be upfront about your finances and provide all the documentation that the lender requests in order to make the process as speedy as possible.
Does it hurt your credit score?
Finally, some buyers may be concerned that the pre-approval process can hurt their credit score. Be aware that although your score may drop a few points if multiple lenders are pulling your reports, it’s not enough to significantly damage your score.