Pre-Approvals Help Homebuyers

Mortgage pre-approval will tell you how much you can borrow. It makes buying a house easier, but you shouldn't put your entire faith in it. There're pitfalls to watch out for - your mortgage guarantee can be revoked, and being pre-qualified isn't as good as pre-approved.

Why To Pre-Approve Your Mortgage

  1. You know your mortgage amount and can focus only on homes within your reach.
  2. You can plan adjustments to your payments, mortgage amount and down payment.
  3. Agents have more commitment to working with mortgage pre-approved buyers.
  4. Proven ability to pay will give your offer a better acceptance.
  5. Pre-approved status may give you more negotiating power with a seller.
  6. If you select a fixed rate, you'll be protected against increases for up to 120 days.

Pre-Qualified vs. Pre-Approved

Some lenders won't verify your financial credentials when you ask for a mortage guarantee. If you meet their general criteria they will only pre-qualify you for the financing, conditional on later approval.

What you'll receive is a simple initial assesment which doesn't have much weight to warrant your loan. However, if you are pre-approved instead of pre-qualified chances of having your financing secured are much better.

That's because a pre-approving lender will actually run a credit check on you, and ask to see all paper evidence which may be necessary to evaluate the status of your employment, income, assets and debt load.

This will reduce your risk of being denied a proper financing when it's time to close the purchase. On the top of that, if you know your price limit you may fine-tune your home buying decisions.

Advantages of pre-approval which a vague pre-qualifier doesn't have are undeniable. So, when you talk to lenders request a thorough pre-approval.

If they can't offer it to you, just seek your mortgage somewhere else. Once you have it pre-approved you can be certain of making a good step towards buying a home.

Mortgage Amount Can Change

When your offer of purchase is accepted, you'll have to apply for a mortgage and the lender will request an appraisal. These two events may have an impact on what you'll actually receive.

  • The lender will verify your status again to make sure you still qualify for financing. Keep your finances in a good order after being pre-approved. You'll get what you have been promised only if they don't get worse by the time you apply.

    For instance, if you change jobs, increase your debt, miss some payments, move around your down payment or co-sign a loan, your pre-approval can be invalidated.

  • Lenders ask for an appraisal to ensure the property is worth the money you want to pay. If the price is higher than the market value your mortgage may be reduced or revoked.

    Have your offer conditional on obtaing satisfactory financing. If you don't get it you can simply walk out of the transaction and look for another home.

    Otherwise, you will need more money to finalize it, or will find yourself at risk of failing to close the purchase, losing your deposit and being sued.

Your pre-approved amount is the maximum which you can borrow. It'll strech your budget to the limit. A cautious homebuyer would look at it from a wider perspective since paying off a mortgage most often takes a very long time.

It's a good idea to search for a home at a lower price, so you can include in your budget future plans, and have some safety margin for unexpected events.

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