Preapproval is a must in today's real estate market
In the past buyers didn't worry about where their financing would be coming from until after they had found a home to buy. Once they had a contract on a property they would shop around for a loan and try to find the best terms that they could. In order to compete in the current real estate market buyers should be preapproved to make them more attractive to Sellers.
Advantages to Preapproval:
You will know how much money you have to spend on a property. In many instances a buyer will be looking at properties which are beyond what they can get financing for due to unforeseen debts or other financial factors.
A preapproved loan is essentially a cash offer. A Seller will look upon your offer much more favorably than one from an unapproved buyer. A Seller does not want to find out part way into the process that you won't be able to get the necessary funding.
Your offer will include a specific time frame in order to get your mortgage commitment from your lender. If you fail to secure funding in that time you might have to back out of the purchase agreement. This could result, under some circumstances, in you losing deposit money. Being preapproved allows the loan process to move forward more quickly.
A preapproved buyer is more likely able to close quickly if the Seller needs to. This can make you more attractive to a Seller and give you more bargaining power.
To get preapproved you will need to talk to a lender, and fill out a loan application. You will need to provide paperwork documenting your income and assets as well as your debts. The lender will want to verify your employment and will need your authorization to have your credit checked.
Preapproval vs. Prequalification
Prequalification is a less rigorous process than Preapproval. With prequalification, a cursory check is done of the applicant's finances, and a statement made as to how much they think you would qualify for. They are not guaranteeing a loan amount. Without a written certification it is not a true preapproval and will not carry much weight with a Seller. A lender should present you with a letter bearing your name and the maximum loan you are approved for. It proves that your finances have been examined and approved.
Many lenders will preapprove applicants at no charge. The lender knows it lessens the chance of the buyer looking to other lenders once they find a property. Preapproval does not prevent you from changing to a different lender if you so wish.
