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First, it helps you narrow down the homes under consideration because it tells you what price house you can afford. Second, pre-approval can give you a leg up over other buyers when you find a home you like. Sellers are more likely to accept offers from buyers who they know have financing secured, because the sale is more likely to close.
During pre-approval, lenders look at your entire financial situation. You will be required to show proof of income and submit your social security number, so the lender can review your credit. Pre-approval is not the same as prequalification; prequalification is an estimate of the amount of money you can borrow and it is not guaranteed.
Pre-approval is a good step to take before you start shopping because it shows sellers that you are a serious buyer. In fact, in some housing markets, for your offer to be reviewed it is necessary to be preapproved. That way, sellers can be certain the deal won’t fall through.
Remember that you can certainly buy a home for less than your pre-approval amount. Think of pre-approval as your limit. If your budget doesn’t allow for a $1,500 monthly mortgage payment but your lender says you can afford that much, stick with your budget. You know your spending priorities better than your lender.
Published on January 23, 2007Read full article at realestate.com