A well regarded real estate agent Westminster professional affirms that one of the first and most important steps in the process of buying a new home is figuring out exactly how much you can afford to pay for that new property. As upfront cash payments are no longer the standard for real estate transactions, most transactions being financed from mortgage loans, the best way to find out how much you can spend is to get pre-qualified for a loan by the financial institution that you are planning to turn to for the loan. Here are some things to know about the process and its importance.
The Process of Getting Pre-Qualified
The pre-qualification phase is the step that precedes pre-approval. In order to get pre-qualified, the prospective borrower submits a set of data requested by the loan lender to calculate the sum that the borrower can get in the form of the mortgage.
The financial institution of choice uses the data submitted by the customer to provide the information regarding the sum that can be borrowed, but the sum calculated this way is just a preliminary calculation. If the customer needs an official document that states exactly how much the mortgage lender is willing to actually lend, the process needs to move on to the pre-approval step – the process of getting the data submitted, including information related to the customer’s debt, income and assets, verified by the lender and the issuing of an official document that can be used during the negotiations with the seller of the desired property. The letter of pre-approval is a much more detailed document that contains not only a general evaluation of the applicant’s finances, but also the exact sum of the affordable down payment, the exact loan amount and accurate calculations regarding the interest rate for the entire duration of the loan.
The Benefits of Getting Pre-Qualified and Pre-Approved for a Loan
Obtaining the document from the loan lender takes you, as an interested buyer, one step closer to getting the home you need. Here are the benefits:
- Knowing exactly how much you can spend – knowing the loan amount that you can afford will help you choose the real estate to buy and will also give you confidence during the negotiations;
- Proving that you are a serious buyer, able to pay the price of the property – the pre-approval letter will demonstrate to the seller that you are a serious, reliable buyer who will have no problems paying for the property;
- Faster closing – most financial institutions take some time, usually around 3-5 days, to perform the necessary checks and to issue the letter of pre-approval, so starting the loan pre-approval process after you have found the ideal property to bid on would prolong the negotiations or, even worse, might put you at a disadvantage compared to a buyer who already has the document. To prevent such issues, get a pre-approval before you even start looking for the right home to buy – that way, your seller will know that you have the money you say you do.