Getting preapproved for a loan is one of the most important steps to buying a home—and, in fact, it should be one of the very first steps you take if you’re serious about buying. But what does it mean to get “preapproved”… and why does it matter?
Get Preapproved—It Matters!
When you get “preapproved” for a loan, you have a lender review several details of your current and past finances—including your credit, income, and debts—to determine that you’re able to qualify for a loan. The lender will also tell you exactly how much money they would be willing to lend you.
During the preapproval process, the lender will request several pieces of information from you, including documentation of any assets you own, employment verification and proof of income, and a driver’s license or other identification.
So, why does all that matter?
You’ll identify any red flags up front
If you’ve recently made a large purchase, paid off or taken on new debts, or opened any new lines of credit, you might not know exactly how your credit has been affected. You may also not realize how much of your income goes towards paying off standing debts. Your lender, however, will quickly be able to tell you what’s going on behind the scenes.
When you get preapproved, your lender will take a in-depth look at your money and your credit to determine if there are any potential barriers that could prevent you from qualifying for a loan. That gives you plenty of time to address issues—before you lose a home you love!
You’ll know how much you can borrow
When a lender reviews your finances, they’ll determine exactly how much they’re willing to lend you. Knowing this hard number before you start your home search can save you a lot of time and effort by automatically eliminating any homes that are listed above that number. If you can’t qualify for enough to buy the home, you can’t buy the home!
You’ll have a better understanding of monthly costs
A lender might tell you they’re willing to lend you $300,000, but what does that actually look like in terms of a monthly payment? Well, when you get preapproved, your lender can tell you that, too.
When your lender tells you how much they’d be willing to lend, they can also break that estimate down into monthly payments to show you how much you’d be paying per month based on your initial down payment, your interest rate, and estimated taxes and insurance costs.
(Want a rough estimate? Try out this mortgage calculator!)
You’ll show sellers you’re serious
Anyone can walk into an open house and make an offer—they don’t have to be preapproved, working with an agent, or, really, even serious about buying the home. By getting preapproved, you show sellers—and their agents—that you’re worth spending time to work with.
You’ll make your offer more competitive
A preapproval letter doesn’t just show sellers you’re serious; it shows them you’re capable, too. If a seller receives two similar offers, one from a preapproved buyer and one not, the seller is likely going to pick the preapproved buyer (unless the other is a cash offer).
An offer from a preapproved buyer is much safer than one from another buyer, since the seller already knows that that buyer is capable of qualifying for a loan. Should the seller accept an offer from an unapproved buyer, that offer could quickly fall through if the buyer fails to qualify.
Ready to Buy in Bayonne?
Are you thinking of buying a home in Bayonne? Century 21 Viewpoint Realty is here to help! Contact our team today to learn more about how we can ensure you find the perfect home… in just the right spot.