The Importance of a Pre-Approved Home Loan Letter

When you are shopping for a new home, it's vital that you are qualified. Even more important having proof in hand that you are pre-approved for a home loan. When you have a pre-approval letter, everyone wins.

First, your realtor will know which homes are in your price range and can target the search for the perfect home based on the amount that you are pre-approved for. This targeted approach means that you will be looking at homes that you can afford and avoids the heartache of falling in love with a house that is simply out of reach.

Next, when you get pre-approved for a home loan, you will know exactly what you can afford and how much your lender is willing to lend you. By having this information, you can take a look at your monthly budget and crunch the numbers. How much will your monthly payment be with the financing the lender has approved you for? Can you afford the monthly payment? By understanding how the mortgage affects your pocketbook you will be more likely to stay within budget. For example, if you've determined that the most you can pay for a house is about $300,000, you may be tempted to look at a house listed for $330,000. After all, what's another $30,000, right? Wrong. When you have gone through the pre-approval process, you will understand how that extra $30,000 will affect your budget. In fact, you will know exactly what your upper limit is.

Finally, the seller will appreciate that you have done the legwork and prequalified for a loan. The seller will be more willing to entertain offers when they know the buyer is serious as well as qualified. Imagine how sellers feel when they spend hours, if not days, negotiating with a buyer only to find out after all of the offers and counter offers that the buyer can't obtain financing.

Getting a pre-approval letter is an important tool when shopping for a new home. It doesn't take a great deal of time but it does require thoroughness on your part. The lender will want to look at your financial situation including your income, assets, liabilities, and available cash for a down payment. Be prepared with copies of your pay stubs, tax returns, current bills, and copies of your bank statement.

If you have good credit, a steady income, and a sufficient down payment, you will have an easier time getting pre-approved for a home loan. Those with poor credit, sporadic work histories, and little cash will be hard pressed to find a lender willing to take the risk.

If you don't get pre-approved, you will have saved everyone a lot of time including yourself. This doesn't mean that home ownership is out of reach; it simply means that you have work to do before you can become a homeowner including improving your credit, finding steady work, and saving money for a down payment.

Before you walk through a realtor's front door or go to your first open house, give your mortgage lender a call and schedule an appointment to get pre-approved for a home loan. You'll be glad you did.