Why Loan Preapproval Is the Way to Go

With loan preapproval a prospective home buyer is in a stronger position to negotiate with sellers, can act faster than others interested in the home and has already done most of work in preparing to buy. Consider the following information about loan preapproval and you’ll see why it’s the way you should go.

Preapproval vs. Prequalification

Loan preapproval and loan prequalification sound similar but are two different concepts.

A prequalified borrower has answered a few questions for a lender, may or may not have submitted some documentation and received a non-binding estimate of what he could borrow.

A preapproved borrower has completed relevant sections of a loan application, and received a letter of preapproval from a lender stating the borrower will be approved for a loan of a given amount so long as none of the application details have changed and the property to be purchased meets loan-to-value and other requirements.

Identify Problems Early

The time to find out you cannot borrow all you need is not after you have made an offer on a house. Home loan preapproval means you have completed enough of the initial stages of the loan process so that you know how much you can safely borrow. This allows you to shop for a home in your price range. But it also will identify problems with your credit score or financial circumstances well before you actually need the loan.

Armed with this information you can seek preapproval for a lesser amount or take steps to solve whatever problems were identified.

Negotiating Strength

In negotiating the purchase of a home, a buyer with loan preapproval is in a strong negotiating position. If a seller is willing to come off the price and you can show that your best offer will be paid for by your preapproved home loan, the seller will be assured that he has a deal if he accepts your offer.

With loan preapproval, you will be able to move faster than other home buyers.

Speed Your Closing

Realtors never count a home sold until the sale is closed. A lot can go wrong between the time a house goes under contract and the deal is finalized at the title company. Once you have a contract to buy, it is to your advantage to close the sale quickly before your circumstances, the seller’s circumstances or the economy in general change. Loan preapproval streamlines the closing process, letting you focus on appraisals, title search and legal work. Your loan paperwork is already mostly done.

Flexibility Is Still Yours

Receiving a letter of loan preapproval from a lender does not mean you’re committed to that lender should you find a house and put it under contract. If you approach another lender, you will still have to complete all loan application paperwork, but if your initial lender is not offering the best interest rates or terms as closing approaches, you can go with another company.