When it comes to buying a new home, there’s always a lot of talk about being preapproved or prequalified for a mortgage. And while both terms seem interchangeable, in a competitive housing market, being preapproved for your mortgage can be much more advantageous as a homebuyer.
To clarify, you become prequalified when you provide a lender with your financial information (i.e. income, debt, assets, etc.) in order to determine the mortgage amount for which you qualify. Because the information you provide doesn’t need to be verified yet, the procedure is quick, but provides you with more of an educated guess than an accurate appraisal.
On the other hand, to become preapproved, the process is a little more in-depth. Like becoming prequalified, the first step to becoming preapproved involves providing a lender with all of the necessary financial information, including your credit rating this time. Then, after completing an extensive check to verify your information, your lender will provide you with an exact loan amount for you to use to search for homes at or below that price range. From here, feel free to place a bid with confidence, as your mortgage is all but guaranteed to be approved upon the purchase of the house (barring any unusual circumstances).
As you can see, though both terms are similar, being preapproved holds much more merit than just being prequalified. Though the process might take longer to complete, homebuyers with preapproved mortgages are standout favorites when it comes to selecting the right person to sell to. Here are the top 4 benefits to having a preapproved mortgage:
1.) Save time searching for homes
Without a preapproved mortgage, it can be confusing determining what homes fall in and out of your price range. Without having an accurate baseline for your pricing, you can spend countless hours looking at homes that don’t even fit your budget plans. By getting a preapproved mortgage, not only will you know what houses you can and can’t afford, but your real estate agent will be able to tailor their searches for you as well.
2.) Increase negotiation power
If you get into a bidding war, knowing how much you can borrow with your preapproved mortgage will give you an advantage over your competitors. If you know your exact price limit, you can be more strategic with your offers, because you’ll know what an increase can do to your monthly payment. On the other hand, you’ll also know when to walk away from a home when the bid price becomes too high. If there aren’t any other bids, sellers will still be more likely to accept to your offer (even if it’s under the list price), because they’ll be able to confidently take their home off the market.
3.) Purchase a home more quickly
Having your loan preapproved can save you tons of time in the buying process. If you wait until after you’ve found a house to get preapproved, you could spend weeks waiting for your loan application to get processed. However, with a preapproved loan, you can order an appraisal right away, and shorten a 30-day closing period to just a couple of weeks. Also, as mentioned before, if seller is looking to sell their home quickly, a preapproved loan can move you to the top of the bidding list, because they can confidently accept your offer right away.
4.) Make better decisions
When you get preapproved before you start looking for homes, you won’t feel rushed when it comes time to make a decision. If you wait until after, the threat of losing out to a higher bidder can cause you to cut your search short, leaving other options, and possibly more money, on the table. Also, when you’re preapproved beforehand, you don’t have to worry as much about all the nuances involving price. Instead, you can focus on the little things that matter, like the backyard getting enough sunlight for a garden.
In conclusion, there are many reasons to get your mortgage preapproved before starting your search for a new home. Whether you’re looking to save time and money, or just looking to optimize your search process, a preapproved mortgage can help make the whole buying process less of a hassle. For more information about preapproved mortgages, or to start the preapproval process yourself, contact your FNB representative today.