Applying for a loan and obtaining approval before a buyer finds a home they want to buy can be a distinct advantage. Making a loan application is going to need to be necessary eventually anyway unless they are going to pay cash for the home.
Pre-qualification is a procedure where you get an opinion from a mortgage officer about how much you qualify for. In the process, any obvious difficulties that might cause problems might be discovered. This process is always recommended but it doesn't have the advantages of a pre-approval.
Pre-approval requires a complete application with credit reports and verifications. The Mortgage Company will issue a commitment subject to a specific interest rate and points and a satisfactory appraisal when the property is identified.
Time limits are usually placed on pre-approval commitments. It is recommended to be ready to look at homes and make a decision after you receive your pre-approval commitment.
The advantages of being pre-approved are:
- Looking at the right-priced homes.
- Avoiding disappointment in deciding on a home that you can't afford.
- Saving money with a seller who is confident about taking their home off the market with buyers who have a definite loan commitment.
- One less contingency that the seller will be concerned with to get their home sold.
- Closing more quickly the lengthiest contingency is usually the mortgage approval. The appraisal can be done quickly.
- Minimizing the anxiety of not knowing whether or not you qualify.