Quick read - why you NEED to get pre-approved
Why Get Pre-approved?
By having a buyer get pre-approved they show potential sellers (and their realtor) that they are serious about purchasing a home. Sometimes, buyers think that they are ready to buy a home, however, when they talk with a mortgage lender they realize that they need to clean up their credit and/or save more down payment money before they can actually buy a home... This conversation is important as it provides a buyer with a realistic approach to what needs to be done to actually buy a home. A buyer's credit score needs to be 620 or better to qualify for a mortgage. A VA loan buyer needs no money down, an FHA buyer needs 3.5% money down and a conventional loan buyer needs at least 5% or more money down to purchase a home. Surprisingly, many people are either unaware that their credit score is too low to buy or they have not done the math to figure out how much down money they need... and have totally forgotten that they need to also save for closing costs. Estimating closing costs for a buyer is tricky, as this is dependent upon so many variables... price of the home, amount financed, interest rate, taxes, homeowners insurance, title fees, attorney fees, and the time of the month and year of a closing... While it might not seem like a big deal, pre-approval is a vital part of the process, and there are multiple reasons why you should do it before you get serious about house shopping. Basic message: it increases YOUR buying power.
(1) While pre-qualification gives you an idea of what a lender believes you can afford. It does not guarantee that you will be offered that amount as a mortgage. Pre-qualification is great in the thinking and planning stage, but when it comes time to buy still take that step to getting pre-approved.
(2) You'll know exactly how much you can spend on a house: its a common occurrence that people fall in love with a house that they cannot afford. Usually, there is no way to go around this, most people won't accept a low offer on their home. To avoid the horror of falling in love with something you can't have - figure out your budget as well as what loan you can get.
(3) A great house will often have multiple offers. In order to put your offer ahead of the others, the buyer wants to know that what you are offering is possible. By knowing that your offer is already pre-approved, that could put the buyer in a more comfortable position to take your offer over a slightly higher offer that isn't pre-approved.
(4) While you might see that getting pre-approved is a waste of your time, you will actually find the opposite. By getting pre-approved you are one HUGE step further in the process. Once you find your dream home, you will be all ready to take the next step, and make an offer that has clout.