2 min read | Bhumika Batra
Having your own dream house is indeed a life-changing, momentous decision. Purchasing the property can not only exhaust our savings but can even have a bearing on our future earnings. So, it is definitely wise to go for a mortgage while investing in the property.
While shopping for the mortgage we often hear that it is ideal and fair to have a pre-approval to get the mortgage,
Now, what is Pre-Approval and is it necessary to get a mortgage pre-approval?
Imagine having your eyes on the sprawling house with a spectacular terrace and ample lighting, and you go ahead and make an offer, but it gets rejected as a low offer and the seller accepts another bid!
This is where Pre-approval comes into the role. Pre-Approval is an official document that defines the details of how much a lender is willing to borrow or can help you have a credible estimate of your mortgage limit, portraying you as a serious buyer. It pins down the entire procedure of purchasing the property i.e., the borrowing capacity, repayment, mortgage rate, it all becomes clear and concise. Unlike pre-qualification, the pre-approval certifies that a lender is committed to providing the borrower with finances.
What is Pre-Approval? How is it different from Pre- Qualification?
A mortgage pre-approval is a letter from the lender showcasing or defining the maximum mortgage amount or limit the lender is willing to give the borrower. These days most sellers require a mortgage pre approval before they accept the offer to buy the property. When you are hunting for a new home, a mortgage pre approval letter shows the sellers you are a serious buyer and will give them the confidence, trust and more willingness to negotiate with you. The letter streamlines and expedites the process i.e., the sooner you can get approved the faster you can buy.
Though there is confusion between preapproval and prequalification—they have some key differences.
Pre-Approval is an absolute and detailed analysis of credit history, income, and debt, whereas prequalification is more of a preliminary or general analysis of your finances based on the information provided.
Prequalification does not require a check by a credit bureau, it’s not an official document, it is a rough estimate of your potential mortgage affordability.
Whereas, pre-approval is an official document and has much more value, as is backed by a written contract and a more detailed analysis of the financial situation. It’s a more solid or concrete estimate of what your mortgage amount could be as it is based on credit-bureau data.
In this blog, we shall explore the benefits of Pre-Approval, so let’s get started;
1. Know your mortgage affordability
It can help you know your future mortgage or how much you can spend and minimise the risk of making an offer or falling into the trap for a home you cannot afford or purchase. It can target your searches.
2. Mortgage financial planning
Even if you still haven’t found your ideal house, you can probably start estimating the mortgage amount and predicting/calculating monthly mortgage payment and planning your finances, which can help determine and fix the budget ahead of time.
3. Locked-in interest rate
Side-step the stress of fluctuations in the market by locking the interest rate 60-120 days. With pre-approval, you can shop for the mortgage and house with peace of mind without rushing or dashing the purchase. Relish the security with a locked interest rate!
4.Stay one step ahead of others
With a pre-approval, you are generally considered a serious buyer.
It instills confidence, trust and reliability amongst the sellers and brokers and not hoodwinking. It can surely enhance your negotiating power, thereby you can have a more solid and attractive offer in contrast to those who don’t have a pre-approval.
5. Free of Cost
Getting a pre-approval is usually free and involves no charges or fees. It comes with no obligation and one can opt for it on free will.
Having a pre-approval gives you a head start and is surely a good idea. So, enjoy the benefits of a pre-approval for the purchase of your home to be on top of financial planning and to strengthen your offer on a house when the time comes. We at MMC aim to bridge the gap between your dreams and reality with our various mortgage programs, impeccable service and experienced consultants!