Although the interest rates vary from one day to the next, the one thing that remains steady is that they are historically lower than any other time in the recent past. A 30-year fixed rate is close to 2.5-3%, which is about as low as I have ever seen throughout my career.
Although many other industries have suffered due to COVID-19, thanks to interest rates being low, the real estate industry is still going strong. So if you are in the market for a new house, now is the time to get pre-approved for your inexpensive mortgage loan so that when you make the offer, you are all set to go !
Pre Qualification Versus Pre Approval
A prequalification and preapproval are both ways to know how much money you will be approved to borrow. But there are some differences between the two, even though some people think they are interchangeable terms. A prequalification can indicate how much you can borrow, but it is not as concrete and specific as a pre approval. To become prequalified, you don’t have to provide documentation about your personal finances, and the lender won’t pull a credit report.
If a lender doesn’t take a look at your credit report, the information that they give to you is only an estimate. That means that things like the loan amount granted and interest rate might change when you supply all of the official documentation. Preapprovals are a lot more certain and concrete, but they require a little more work on your part. To receive a pre approval, you will have to supply documents of your earnings, your tax statements, bank statements, and potentially some other details. And a pre approval requires a hard credit score check.
Pre Approval Versus Approval
Having a preapproval in-hand when house hunting is an excellent way to show home sellers that you have the means to follow through with an offer. And it is also good to know exactly how much you have to spend so you don’t end up wasting time shopping for homes outside of your range. The preapproval is the first step, but when you go to buy a house, you will need to get full approval, which takes a couple of more steps. The second part of the approval process is based on the property details of the home that you want to purchase. The lender will need to get confirmation of:
The Appraisal Value
To get a final approval, the lender will need to have an appraisal of the home to ensure that it is worth what you are paying for it. If the appraised value comes back for less than the purchase price, it could impact the status of your loan.
A Title Company
The lender will need to work with a title company for verification of ownership, and also to ensure that there aren’t any liens against the property.
The Condition of theHome
Loans can only be given to homes that meet certain criteria and standards for closing. If you are purchasing a new build with an FHA loan, things like missing handrails could cause an issue. Or, if a home’s roof is in poor condition, it might not meet the standards necessary to approve the loan.
The Mortgage Pre Approval Letter
Once you get pre approved, you will receive a letter from the lender. The letter is an important part of the process. I like to see confirmation so that I know exactly where you stand and what price range we can consider. The second reason they are critical is that you can share the letter with the home seller when you make an offer. Home sellers are apt to accept an offer more readily if they know that you already have financing lined up.
Why You Should Get Pre Approved
The biggest reason that you should get preapproved is to be certain how much you can borrow so that you aren’t looking outside your price range. But it is also a great bargaining tool when you make an offer. Sellers are looking for more than the highest offer; they want to reduce the risk that the house won’t close because you don’t have the resources. A preapproval tells them not only that you are serious, but that you have the means to follow through to the end. Pre-approvals also help to expedite the closing period, which for many sellers is a reason to accept a lower offer.
Contact Us to Get It Done!
With interest rates so low, now is an excellent time to think about buying a new home. Instead of going into your house hunt blind, it is a good idea to have a concrete price range before you start searching. That way, you aren’t wasting your time looking through homes that aren’t an option or being disappointed by not being able to purchase a home after you fall in love.
I would love to help walk you through the preapproval process and get your home buying underway – contact me today and let’s get it done!