Know the Advantages of Getting a Mortgage Loan Preapproval

Show your seller you’re serious about buying their home with a loan preapproval letter.

Not only is a written loan preapproval amount helpful for buyers to know as they shop, it’s a critical piece of information to share when making an offer.

Competition is fierce in this market, with the average seller receiving 3.8 offers, according to the National Association of Realtors.  Home shoppers sharing a preapproval letter to sellers with their offer are perceived as serious buyers and will have an advantage over those who cannot prove they have consulted with a lender.

Buyers should get loan preapproval before they even begin looking at homes.  It is important to have finances in order, and the preapproval process itself can often be accomplished in a few days or less—depending on the lender.

Typically, loan preapprovals remain valid for 90 days, although some may be good for 30 or 60 days, notes bankrate.com. 

Here’s how the preapproval process works:

·         You’ll need to provide information about your income, assets, and debt load when seeking loan preapproval, says Bankrate.  Such documentation is found in pay stubs, W-2s, proof of other income sources, and statements from checking, savings, and other accounts.

·         The lender will run a credit check.  You can check your own credit first to correct any errors, and to understand your potential to get a good mortgage rate.  You can find your credit report at AnnualCreditReport.com.

·         You’re preapproved when the lender evaluates your credit and financial situation.  They will use this information to determine the monthly dollar amount you can afford, and the loan amount for which you are eligible.  “In general, lenders like to see a mortgage payment taking up no more than 28 percent of your gross monthly income, and your total debt payments…accounting for no more than 36 percent of your gross monthly income.”

If you find that you are not eligible, learn why you were denied and understand what you need to do to obtain preapproval.

“Some lenders have very stringent qualifying criteria,” notes Bankrate.  “Another option is to work with a different, more flexible lender,” perhaps a local bank or credit union.

In today’s low-inventory, highly competitive real estate market, the importance of holding a preapproval letter before you even begin to shop cannot be overstated. 

Loan preapproval not only helps guide your purchase decision, but also shows your seller that you are serious when you make your offer.

Post authored by Lora Bray.

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