Congratulations! You’ve decided to enter the wonderful world of homeownership and make the most significant investment of your life. Navigating the real estate market is often frustrating and outright overwhelming for first-time homebuyers. But with a little research and the help of a trusted agent, you’ll do just fine. Once you’ve decided you’re ready to move forward, the first thing you want to do is to get pre-approved for a mortgage; read on to find out why.

 

Am I ready to buy?

Before you begin working with a loan agent for pre-approval, you want to make sure that your financial affairs are in order. How’s your credit? Do you have a lot of outstanding debt? If your credit score is low or you’re in the midst of paying down debt, you may want to wait a bit longer to begin the home buying process. 

When you go for mortgage pre-approval, you need to know that they’re looking at your past and current financial situation to gauge the risk of loaning you money. A high debt-to-income ratio may increase your risk of missing a payment, which lenders factor in when they consider all of your financial information. If you have a history of non-payment, that will affect your credit score and appear on the report. It’s better to work on becoming more financially secure before considering homeownership.

If you’re already on top of saving money and building credit, you’re likely in good shape to proceed to see what your loan options are. 

 

How much house can I afford?

A great thing about getting a mortgage pre-approval is that you find out how much you can spend on a home, based upon your down payment and the loan amount for which you’re approved. If you aren’t sure how much house you can afford, you’ll have a better idea after you get pre-approved for a loan. However, it’s important to remember that while you can get approved for a much higher loan amount than expected, it’s not always financially prudent to buy a home at the max amount.

 

You’re serious about buying

These days, many real estate agents won’t show a home unless a prospective buyer has a mortgage pre-approval in-hand. When you get pre-approved, you’re showing that you’re serious about buying a home and that you’re not just window-shopping. That mortgage pre-approval also shows how much you’re able to get a loan for, so the agent knows what homes are in your budget range. It would be a waste of time for an agent to show you a million-dollar home if you can only borrow up to $250,000, right? That is, unless you have the other three-quarters of a million saved.

 

It eases the seller’s mind

With a mortgage pre-approval in-hand, you’re not only showing a seller that you’re serious about buying, but you’re also illustrating that you have your ducks in a proverbial row. Being pre-approved for a loan means that a lender has done a preliminary review of your financial information and said that you are a qualified candidate. 

Since you’ve already begun the loan process, there is a lower chance of a surprise happening between putting an offer on a home and getting approved for financing. In the seller’s mind, they won’t be wasting time in the process by taking a chance on an unvetted buyer, should they not be approved. However, mortgage pre-approval is not always a sure bet.

 

Not always a sure thing

One of the biggest mortgage myths you should know is that getting pre-approval does not mean you’re all set with financing. While different lenders vet your financial information in varying degrees, getting pre-approved for a mortgage does not mean you’ve secured a loan. Mortgage pre-approval simply means that a snapshot of your financials and credit looks promising enough to lend, rather than an outright “no.”

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