Shopping for a home before getting preapproved for a mortgage is the equivalent of walking into a grocery store without a wallet. Yet, the vast majority of homebuyers don’t get a loan preapproval before their house hunt. So, what is a preapproval? For one, a preapproval is different from a prequalification.
Prequalification: The lender relies on information provided by the buyer to estimate how much the borrower could qualify for.
Preapproval: The lender verifies and validates the borrower’s information and documentation to determine exactly how much it would be willing to lend to that borrower.
A preapproval is not a loan commitment, but it helps speed up the underwriting and loan approval process.
Here are three reasons it’s better to get a mortgage preapproval BEFORE you go house hunting.
Buyers often are eager to start looking at homes and tend to leave what they view as the boring, bureaucratic part of the homebuying process for last, however in this competitive market, any serious buyer should pursue a preapproval from a lender in advance to beginning a home search.
Real estate agents and mortgage professionals say it’s common to come across buyers who skip the preapproval process.
As with many other agents and sellers, your offer could be rejected since you don't have a preapproval letter. You need to have a preapproval and it must be a real preapproval where the lender has verified not just your credit, but your income and assets.
Some buyers put off the loan application because they fear a lender may not approve them for the amount they plan to spend to buy the house. It’s like when people don’t go to the doctor for their annual checkup when they are afraid to find out what’s wrong with them.
Others simply don’t want to share an abundance of private information with a lender until they actually find the home they want.
Even if you pay your bills on time and earn about the same as the friend who just got that $300,000 mortgage, don’t assume you qualify for the same loan. A credit score difference of 700 to 680 can severely affect one’s ability in terms of down payment and interest rate.
Getting preapproved before you shop for a loan also allows buyers time to handle unexpected bumps in the raod.