Why Getting Pre-Qualified Should Be the First Step of Your House Shopping Process
If you’ve been shopping for a home, you probably heard about pre-qualification. But what exactly does it mean to get pre-qualified, and why is it one of the most important things for house-shopping success?
What does it mean to be “pre-qualified”?
A pre-qualification is the initial, no-cost process you undergo with a lender to understand what interest rate, and how large of a loan, you may be qualified for. To get pre-qualified you will provide some basic information to the lender about your finances, such as your income and debts, to let the lender determine whether or not they would approve your loan application. The lender might also run your credit. The entire process shouldn’t take longer than 10 minutes, and at the end you will receive a pre-qualification letter. Generally, it’s best to get this done before you begin shopping for homes and making offers, because you’ll be equipped with a lot of pertinent info. It’s important to understand that a pre-qualification is not the same as a full-on loan approval. The loan approval requires a very detailed, and lengthy review of your financial history performed by licensed underwriters. However, a pre-qualification is the initial, no obligation, step that could give you a definite leg up in the house shopping process. Below are the reasons why.
There are a number of benefits to getting pre-qualified before you begin house hunting.
Know if you’re realistically ready to be a home owner
If you find out that you don’t qualify for a loan during the pre-qualification process, you will save yourself a lot of time and frustration. You’ll also have a better understanding of what you need to do to begin getting your finances in order. Is your credit score too low? Do you need to improve your monthly earning capacity to afford your dream home? It could be time to look into a program or get on a plan to rebuild your credit, get a side-hustle, or look for a higher paying job. Then, check in with your lender again in 6 months or so to see if you’ve improved your finances enough to qualify.
Getting pre-qualified means being prepared
When you go through a pre-qualification, you get a lot of information that is not accessible to you otherwise. Some things you figure out are your monthly payment, your personalized interest rate, and your price limit. Knowing those numbers lets you plan out the exact amount you wish to spend on a home. Would a $1,500/month mortgage make it difficult to pay for your hobbies? Maybe look for a home that’s a little bit smaller, but wouldn’t require you to sacrifice your lifestyle. On the other hand, is the monthly payment for your proposed home price less than you thought it would turn out to be? Maybe you’ll want to expand your search to consider homes that are a little nicer than what you thought you could originally afford.
Learn about the mortgage options available to you
Getting pre-qualified means talking to your lender early in the process. Use that as an opportunity to learn about the options available to you. Have you pinned down your ideal down payment amount and your monthly payment? Have you figured out which loan type is best for your situation – fixed-rate or adjustable-rate? Are there special programs available for you that you weren’t aware of, such as VA loans, FHA or USDA that will affect your payment amount? Having an honest chat about your goals with your loan officer will help to answer all of those questions.
Be well-equipped to make offers
Having a pre-qualification letter will improve your credibility because it lets sellers know that you’re more serious about buying a home in the near future. It also shows that you have the financial backing of a lender and will be able to follow through on your offer – which makes sellers more likely to accept it. This could be particularly helpful during a bidding war – when you have to go up against multiple offers and the strongest gets accepted.
A pre-qualification offers many advantages and little to no downside if you’re serious about buying a home. Want to know if you qualify for a home loan? Speak with one of our loan officers today.
Agora Lending is a new type of mortgage lender. We use technology to keep our operational costs as low as possible. From closing costs to interest rates, we made it our mission to make the process of buying a home more streamlined and affordable. Get in touch with one of our mortgage specialists to learn more.