How do pre-approvals work and why are they important?
When you’re shopping for a new home, securing financing is often one of the most daunting tasks. One way to ease this process is through a pre-approval, which is an essential first step toward homeownership. But what exactly is pre-approval, and why does it matter? Let’s break it down.
What is a pre-approval?
A pre-approval is a conditional agreement from a lender that you qualify for a mortgage based on your financial history. This process involves a lender assessing your income, credit score, debts, and other factors to determine how much they’re willing to lend you. Unlike a pre-qualification, which provides an estimate, a pre-approval is a more thorough, formal process and can give you a clear idea of your budget when looking at homes.
How do pre-approvals work?
To begin the pre-approval process, we provide a lender with detailed information about your financial situation, including payslips, tax returns, and credit history. The lender will use this data to assess your ability to repay the loan. The process can take a few hours, a few days or a couple of weeks dependent on the complexity of the application and the lender’s policies.
Once your pre-approval is granted, the lender will provide you with a letter stating the loan amount you qualify for, which can be used to show sellers and real estate agents that you are a serious buyer.
Why is pre-approval important?
Helps you set a realistic budget: Knowing how much you can borrow makes it easier to set a realistic budget and avoid falling in love with properties that are out of your price range.
Shows sellers you’re serious: A pre-approval letter shows sellers that you are financially capable of purchasing their home, which can give you a competitive edge in a tight market.
Faster closing process: Having a pre-approval in place can streamline the mortgage process once you find a home. You’ve already done the legwork, so the final approval can be quicker, and you’ll be closer to closing.
Negotiating power: In a competitive market, sellers may be more likely to accept an offer from a buyer who has a pre-approval letter, as it reduces the risk of the sale falling through due to financing issues.
How long does a pre-approval last?
While pre-approvals are an invaluable tool, they don’t last forever. Most lenders will grant pre-approvals for 60 to 90 days. After this period, the lender will typically require a new application and updated financial information to ensure your situation hasn’t changed. It’s essential to keep this in mind, especially if you’re planning a long house-hunting journey.
In conclusion
Pre-approvals are a powerful tool for buyers. They offer financial clarity, make you a more attractive buyer to sellers, and can expedite the home-buying process. By taking the time to get pre-approved, you give yourself a distinct advantage when entering the real estate market.
At More Loans, we specialise in helping home buyers understand their goals, assess their borrowing capacity and work with the lender to get your pre-approval. Contact us today and take the next step toward securing your pre-approval.
