Before you start shopping for your dream home, you should first establish a budget. However, trying to sort out the financial details of purchasing a home on your own is no easy feat. It requires intensive calculations based on your credit score, the size of your down payment, your employment history, and the debt you carry. Before meeting with a real estate professional, it’s in your best interest to meet with a qualified lender and get pre-approved for a mortgage. As the buyer, this pre-approval is tremendously useful and can be leveraged to your advantage. Here are three reasons why getting pre-approved for a mortgage is an essential first step to purchasing a home:
1. It gives you credibility as a buyer
Getting pre-approved for a mortgage demonstrates to all parties involved that you’re serious and capable of buying a home. The last thing a seller wants is uncertainty. Since your offer may be contingent on getting a mortgage, by not providing this assurance, you’re creating doubt in the seller’s mind as to whether the deal can go through. As a result, some sellers may choose to exclusively work with pre-approved buyers, which could otherwise limit your options. When it comes to pre-approval, not only will you make yourself a more credible buyer, you may even gain a competitive advantage over those who are not pre-approved in a situation where there are multiple offers.
2. It helps your REALTOR® be more effective
By getting pre-approved for a mortgage, you will be clearly defining your budget for your agent. In doing this, your agent can effectively focus your search. Together you can work through your wish list, define your wants and needs, and prioritize accordingly based on your budget. Using this specific criterium, your agent can also recommend neighborhoods to help narrow in on your dream home. Once you’ve found a home on which you’d like to place an offer, being pre-approved can give your agent leverage in the negotiations. Since being pre-approved communicates to the seller that your offer is solid, your agent can use this as a bargaining chip to help secure the best possible price.
3. It provides clarity and peace of mind
Having a complete understanding of your finances helps dispel a lot of ambiguity that comes with purchasing a home. The lender should explain what you can afford and factor in all the hidden costs that you may not have considered. That way no fees get overlooked and you don’t unintentionally overextend your finances by making an offer on a home that proves to be out of your price range. Finally, applying for a mortgage can be a stressful situation, which is why it helps to take care of it on the front-end. By getting pre-approval, you can move through the transaction with the confidence and control that can come from having your finances in order.
While it’s always fun to shop online for your Great Gatsby home, once you’ve decided to actively pursue the purchase of a new home, it’s in your best interest to first get pre-approved for a mortgage. Doing so can help set a solid foundation for this incredible milestone in your life.