Ever gone to the store without your wallet? Then you know how embarrassing and frustrating it can be to want to buy something and suddenly discover that you’re unable to pay for it.
When you’re buying something as important as a home, it’s important to sort out how you’re going to finance that purchase before you get to the offer table. That’s where mortgage pre-approval comes in.
The process empowers you as a homebuyer, but also provides certainty for all parties involved (buyer, realtor, and seller) that you’ll be able to secure home financing. As the global pandemic continues to affect the current buying and lending environment, getting a pre-approval is an easy and efficient way to help navigate these new disruptions and have one less thing to worry about.
Below, we break down four reasons why the pre-approval process is so important for home buyers.
1. Sort Out Complicated Financial Situations Ahead of Time
Probably the best reason to get pre-approved for a mortgage? Avoiding surprises related to home financing once it comes time to make an actual offer on a home.
And if you suspect that you may face some difficulties or issues securing financing for your home purchase? Well, you’ll want to give yourself plenty of time to clear those hurdles, and getting a pre-approval in advance does just that.
Especially with the global pandemic, a lot of borrowers have seen their income or employment affected in one way or another; getting approved upfront based on these changes is vital to the homebuying process. Whether you own a business, have a complicated financial situation, or have seen disruptions to your employment or assets, going through the pre-approval process can help you understand how your current financial situation stacks up against lenders’ standards and requirements for mortgage borrowers. Lenders across the industry are changing and updating their underwriting and approval requirements on a daily basis, so making sure that you are being pre-approved for the latest and most up-to-date requirements is important.
That said, it’s always much better to find out about issues before you’ve got sellers and contracts involved. And once you’ve secured pre-approval, you can rest a little easier. You’ll know that you’ve already jumped through most of the necessary hoops for financing for your home purchase.
2. Catch Potential Credit Issues Before They Derail Your Home Buying Plans
Even if you think you’ve got stellar credit, the mortgage pre-approval process can alert you to any errors on your credit report.
Millions of Americans have inaccurate information on at least one of their credit profiles with the major credit reporting bureaus. If you’re one of them, you’ll be much better off finding out early in your home-buying process. The last thing you want is to discover a credit issue as you’re trying to put in an offer on your dream home.
Mistakes and errors on credit reports are surprisingly common. Thankfully, the process of disputing and removing inaccurate credit data is relatively straightforward. But it can take some time—anywhere from a few weeks to a few months. As long as you’ve started your pre-approval application early enough? Then you can clear up any issues related to errors or inaccurate credit reporting before they become a major inconvenience.
3. Understand What You Can Afford
When you secure a pre-approval for a mortgage, you won’t just get a ‘yes’ or ‘no’ answer from a lender about whether you qualify for a mortgage. You’ll also find out how much you’ll potentially be able to borrow based on your current financial situation.
Now, borrowing the absolute maximum amount a mortgage lender is willing to offer you is probably not the most financially-savvy choice for most would-be homebuyers. Hopefully, you’ve also created a budget for your household. Before you buy a home, you should have at least a rough idea of how much of your income you’d be able and willing to pay for your housing each month. If you want to quickly see what you’re able to afford and what potential monthly expenses could look like, get a custom quote from Morty.
4. Navigate Buying in the Current Market with Confidence
In the first months of 2020, we saw record levels in monthly home sales , and most real estate markets were at the peak of competitiveness for buyers working to get their offer accepted. In normal times, the pre-approval letter is often used to get an edge over other would-be bidders because it shows sellers that you are trustworthy and can secure financing. It offers a leg up because sellers don’t want to accept an offer from a buyer who may have trouble securing financing; many sellers would rather take a slightly lower offer from a potential buyer who can provide solid evidence that the financing will happen without issues than accept a higher offer from a potential buyer who has yet to start the mortgage process.
However, over the past month we have seen mortgage applications decline as many buyers and sellers have decided to put this on hold while we all wait to see how things play out. We’ve actually seen sellers pull back more than buyers as they think it is a bad time to sell and they won’t get as good of a deal as they would have pre-shutdown. On the other hand, buyers have been trying to find good deals in this environment, especially those that know they are ready or need to purchase. This being said, markets are still active and homes are still being purchased, so a strong pre-approval reflective of all of the recent changes in this environment may help as you negotiate with potential or reluctant sellers. It may also help convince sellers that have put things on hold to entertain the idea especially if either party is constrained by time.
Getting pre-approved for a mortgage can help you clear up potential financing issues before they become serious problems. Given the current environment with COVID-19, having a clear understanding of how your financial situation stacks up with changing lender requirements and how much home you can afford is just as important as ensuring a seller is confident in your offer—with a pre-approval, you can do both.
Ready to get your own mortgage pre-approval?
If you’re ready to get serious about buying a home, you can get started with your Morty pre-approval here.