One of the most common questions buyers have for Realtors is "Why Do I Need to Get PreApproved First?" and why can't you just go off of what the mortgage calculator said? It's so important to understand that what you can afford is not the same as what a lender will lend and that most sellers require that you be a qualified buyer before considering your offer. Read below for more:
Why do I need to get Pre-Approved first?
Buyers often wonder WHY they need to get pre-approved for a home loan and here are my top four reasons.
1. Not all Buyers qualify for a home loan. Yes, that's right not everyone who applies for a home loan will be approved for one or they may be approved for a much smaller amount than anticipated. I've had clients come to me and say I can afford X amount a month and according to the mortgage calculator online I can spend X amount on my purchase. Unfortunately what you can afford and what your lender will loan you are two different stories.
2. To make sure you can afford to buy a home. When getting pre-approved by a lender they will not only go over which loan programs you qualify for, but they will also give you an estimated monthly mortgage payment and closing costs based on your approved loan amount. With this information you can then decide whether or not you can afford to become a home owner.
3. You need to know the terms of your offer. When writing an offer you must know the terms you will be offering; the loan program you are choosing, how fast you or your lender can close along with whether or not you need/want seller concessions. Say your estimate for closing costs is around $10,000, but after your down payment you only have $3,000 left to spare. That means you will need to ask the seller to contribute $7,000 towards your closing costs in order to have enough to purchase their home. Seller concessions are not negotiated after you are under contract on a home, this is done during negotiations.
4. The Seller wants to see proof. A majority of sellers in today's real estate market won't even entertain offers that are not accompanied by a Pre-Approval Letter or Proof of Funds, if paying cash. By providing a pre-approval letter with your offer the seller will know you are not only a serious buyer, but a ready, willing and able one.
Looking at homes prior to getting pre-approved for a home loan is like putting "the cart before the horse." There are several steps to the home buying process and if you need assistance with your real estate needs contact me today.
Photo courtesy of Image: anankkml / FreeDigitalPhotos.net