Should You Obtain a Mortgage Pre-Approval Prior to Your Search for a New Home?
Learn why obtaining a mortgage pre-approval may be a smart move before starting your search for new home.
Are you wondering whether obtaining a mortgage pre-approval is part of a smart home-buying strategy? That’s a question many individuals ask themselves when beginning the process of searching for their dream home. In this Buyer’s Guide article, we’ll take a look at mortgage pre-approvals and how they can help borrowers buy new homes in North Carolina and other states.
Mortgage Pre-Qualification is Not Mortgage Pre-Approval
Before looking at what a mortgage pre-approval is, let’s take a moment to clarify what it is not. Buyers, especially first-time home buyers, often confuse the two mortgage terms pre-qualification and pre-approval. A mortgage pre-qualification involves a lender looking at a potential borrower’s overall financial situation (income, debts, assets, etc.) and providing a preliminary estimate of what loan terms that borrower may qualify for at that time.
During this process, the lender does not pull your credit or determine if you can qualify for a specific mortgage type. Instead, you will gain an understanding of the mortgage amount you may be able to receive. A mortgage pre-qualification is a valuable tool which home buyers can use as they begin the real estate home search as it gives them an idea of the price range of homes they can afford.
What is a Mortgage Pre-Approval?
Now that we’ve cleared up some of the confusion surrounding mortgage pre-qualifications let’s take a look at mortgage pre-approvals. With this home buying tool, you will complete a mortgage application, which often requires paying a fee. You will need to provide a lender with your personal records and income documentation.
Unlike the mortgage pre-qualification, during this process, the lender will pull your credit and take a much more detailed look at your finances. In the end, you will find out if you qualify for a mortgage along with the amount of financing, the potential interest rate, and an estimated monthly payment. You may even have the opportunity to lock-in the interest rate.
Should You Get Mortgage Pre-Approved?
So, let’s go back to the question which opened this discussion: is obtaining a mortgage pre-approval part of a smart home-buying strategy? Many lenders and real estate agents would answer “Yes” to that question. Some, however, present an interesting argument and content that “mortgage pre-approvals are pretended documents” because they do not fulfill their intended purpose in today’s tighter lending environment.
Despite varying opinions about the importance of securing a pre-approval, going through this preliminary step does offer certain advantages. For one, sellers are often advised by listing agents that individuals who do not include a mortgage pre-approval with an offer to buy a home are not serious about closing the deal. Secondly, pre-approval allows buyers to save time since the are able to search for homes within their pre-approved, affordable price range. In a competitive home-buying market where sellers are receiving multiple offers, a buyer with a pre-approval can gain an upper-hand.
Understanding the difference between a mortgage pre-qualification and a mortgage pre-approval and why obtaining a mortgage pre-approval is an important first step to take before starting your search for a new home in North Carolina. Do you need more information or help to start your North Carolina real estate search? Contact us today to experience a smarter, more successful way to buy your dream home in Raleigh, Durham and Chapel Hill.