Savvy loan officers know that waiting on luck is a surefire way to have an unlucky career—luck is made by planning ahead and being prepared. These same principles apply to homebuyers as well, and one of the best ways to be prepared when buying a home is to obtain a preapproval for a loan.
For Homebuyers: What is a Preapproval?
A preapproval is, essentially, an estimate from your lender that specifies how much money you can borrow and what interest rate the mortgage might have. Preapprovals normally require a credit check and an evaluation of a borrower's income and assets to determine their financial health. As the name implies, preapprovals occur before you put an offer on a home.
Some lenders use the terms “preapproval” and “prequalification” interchangeably. Technically speaking, preapprovals are more rigorous and more accurate. If you are confident that you are going to stay with a lender, there may be nothing to lose and everything to gain with a pre-approval. If you’re shopping around and don’t want to hurt your credit, consider asking for a prequalification.
For Everyone: Why Get Pre-approved?
Here are four reasons why a preapproval may benefit both homebuyers and their loan officers:
1: Setting a Price Range
Let’s be real: it’s really easy to set your heart on a home that is over your budget and then feel your heart break when you discover it is an unrealistic option. Getting a preapproval helps a borrower know what price range of homes to look for making the home buying search more targeted. There are also practical benefits to knowing your price range as well, namely, determining the upper limit of what the borrower should need for closing costs and narrowing your search to areas that typically have homes in the right price range.
2: Strengthening the Offer for a Home
At this point everyone is starting to sound like a broken record, but the message is still true: putting down offers on a home is very competitive right now! When a borrower knows the amount that they can purchase a home for along with a pre-approval letter it may have an immediate edge on borrowers still figuring out what they can afford without a preapproval letter.
3: Close Faster
Getting a preapproval may help closings happen relatively quickly for several reasons. First, the borrower already provided a variety of critical documents to the lender that is needed for a mortgage anyway. Second, the borrower doesn’t have to spend time hunting for a lender and a loan officer in the first place! Third, borrowers with preapprovals already know what kind of deals they can negotiate for a home, making it easy to recognize or select a deal that works for them.
4: Determine Down Payment Assistance Needs Early
Most borrowers want to come out the other side of a mortgage with some savings in their pocket that they can spend on the home or retain for an emergency. In either instance, having a good idea of what a borrower may qualify for in a mortgage, and what interest rates might be offered, can help factor in whether a borrower may need assistance. Down payment assistance programs have a reputation of slowing down the closing process. A slow closing may be a deal breaker for some sellers. As a result, knowing whether or not a borrower needs down payment assistance in advance may make it easier to avoid future pitfalls.
This isn’t the case, however, for CBC Mortgage Agency’s Chenoa Fund down payment assistance programs. When a loan officer submits an application on behalf of a borrower for Chenoa Fund, an answer is provided that very same day, and closing may happen as quickly as TRID guidelines allow. That said, knowing in advance that your borrower needs down payment assistance, and choosing CBC Mortgage Agency’s Chenoa Fund, may ensure the smoothest journey possible for the homebuyer, lender and real estate agent.
To learn more about Chenoa Fund down payment assistance, visit chenoafund.org, or reach out to our Information Team at info@chenoafund.org.
CBC Mortgage Agency™ - NMLS 1186381
For licensing information, go to www.nmlsconsumeraccess.org.
Illinois Residential Mortgage License #MB.6761292. Illinois Department of Financial and Professional Regulation, Division of Banking, 100 West Randolph, 9th Floor, Chicago, IL 60601 – 1-888-473-4858. Georgia Residential Mortgage Licensee, License # 1186381.
« The Benefits of Homebuyer Counseling and Homebuyer Education