Why You Should Get Pre-Approved BEFORE Home Shopping

Set Your Budget 

You may have a pretty good idea of how much monthly payment you can afford.  Say, for example, you've thought about your income and your debt/bills, and you believe you can afford a $3,000 payment per month.  That's great!  However, the lender may analyze your credit score, debt to income ratio, etc, and approve you for a purchase price in line with a $2,700 monthly payment.  This is so critical to know before you go out and start looking at homes.  It is absolutely heartbreaking to fall in love with a house, apply for the loan, and hear you are not qualified to purchase in that price range.  On the other hand, the lender may approve you for more than you thought you'd get approved for.  When this happens, you can spend some time thinking about whether you want to foot that increased monthly payment or not.  While we all have a fairly good idea of our budget for a home, your budget is not truly set until a lender analyzes your finances and pre-approves you for a mortgage.  At that point, you can send your Realtor your pre-approval letter, and move forward, targeting only those homes that fit within your budget.  

 Get Your Offer Accepted

One argument I have heard numerous times is "I KNOW I'm going to get approved for XYZ amount of money.  Can't we just go see homes in that budget?"  As mentioned above, it is impossible to know your budget without speaking to a lender (unless you are paying cash).  However, if you do accurately predict what you'll get pre-approved for, that doesn't mean the pre-approval is any less important!  When you submit an offer on a property, the offer goes to the listing agent, who is working for the seller.  The listing agent carefully explains each offer to the seller.  Part of the offer is the Proof of Funds/Pre-Approval.  This is how the listing agent and seller know that you can actually pay for the home.  In fact, many good listing agents even call the lender listed on the pre-approval letter to make sure the buyer is well-qualified and will be able to afford the home.  Without this proof, the seller and listing agent have no idea whether you can purchase the home they are selling, and will almost certainly choose another offer.  Give yourself the best possible chance of having your offer be the one they choose.

  Expediency 

If you are getting a mortgage to purchase a home, you are going to have to submit all of your documentation to the lender at some point.  Why not take care of that before you start to look at homes, so you have it out of the way (and the letter in hand)?  Spending this extra time up front will help expedite your entire home purchase, and make for fewer headaches for everyone involved! 

Getting pre-approved is not a scary process.  It involves speaking with a lender, describing your financial situation, and sending supporting documents to him or her.  Your lender should make you feel comfortable, well-informed, and in the driver's seat.  If you need help choosing a great lender in San Diego, reach out!