What Does Pre-Approved Really Mean?
Before we tell you why you need to get pre-approved, we want to make sure you know the difference between pre-qualified and pre-approved. Qualified means you went in and told someone how much you make and they said you would qualify. This isn’t what you need. You need to get pre-approved. This is when a lender takes a thorough look at your financial picture. You’ll need bank statements, tax information and pretty much all the paperwork you will need once you start the process of actually getting the mortgage once your offer has been made. It’s a good idea to organize now getting all of this information stored in one place. Whether it is a folder on your computer or a manilla one in your drawer.
Once your paperwork has been reviewed, the lender will either approve or deny you. This doesn’t necessarily guarantee the loan, but most sellers will rely on a pre-approval to assure themselves that the buyer can pay for the home.
So Why Go Through All This Before You Even Look At A House?
There are many reasons.
The Competition Is Tough
It’s competitive out there. If you find your dream home, someone who IS preapproved could come in and buy the house while you are still finding out if you will be able to. It can be heartbreaking to lose out on a house you really wanted because you didn’t do some paperwork in advance. Many people won’t accept offers from people who aren’t pre-approved.
You Won’t Waste Your Time (Or Anyone Else’s)
You won’t waste your time looking at houses out of your price. This can make you very upset and frustrated should ou find your dream house, only to realize you can’t afford it. In addition, your agent’s time is valuable, and they will want to have a concrete price range to work with. You shouldn’t ask them to see a house unless you are certain it is within your means. You should also think of the seller who has to clean up the house and leave. It isn’t very ethical to ask people to do this if you don’t have the ability to buy.
Fix Your Credit Now, Shop Later
By getting preapproved before home shopping, you can clean up and fix mistakes on your credit. By improving your credit, you will likely be able to get better terms on your loan.
Don’t buy a house that is actually out of your price range. You don’t want to purchase beyond your means and find yourself in a bad situation down the road. Just because you are approved for a high amount, doesn’t necessarily mean you should buy something that expensive.
Don’t Be Scared
The process isn’t as difficult as many people make it out to be. In fact, it can be pretty simple so long as you have your paperwork in order. Gather up W2s, tax returns, pay stubs, P&L if self-employed, gift letters (if you are receiving help from family or a friend with the down payment), and a list of any fixed expenses. Once you have these documents gathered, store them in one location for easy access. We recommend making digital copies as well. You will refer back to these documents throughout the home buying process, so it is smart to keep them easily accessible.