When you’re ready to get into the real estate market there are certain steps you need to take before you start looking for a property. One of the first steps to make is to get a mortgage pre-approval. This is especially true in competitive real estate markets, which has made it essential to have a pre-approval when shopping for a new home.
More importantly, a pre-approval lets you know exactly how much you’ll be able to spend, which enables you to immediately negotiate your purchase price when you find the right property.
A pre-approval means a lender has reviewed your finances to assess how large of a loan you can afford, and will sometimes provide you with a certificate or letter showing how large your mortgage can be.
Once you’ve been pre-approved, you might be tempted to shop around for a better rate. And if you do find a better rate, you don’t have to go with the first lender that pre-approved you.
A mortgage pre-approval isn’t actually a mortgage and you’re under no obligation to commit yourself to that lender. A pre-approval only secures the mortgage rate from a financial institution for a period of time and doesn’t guarantee you a mortgage. This is because a pre-approval isn’t binding. If you’re not using a mortgage broker, you should definitely shop for the best mortgage rate, especially if you have good credit and are financially stable.
You should ensure that the pre-approval has the longest rate hold possible. A lender will hold a rate for usually up to 120 days. This will often give you enough time to find, negotiate, and close a deal.
When getting pre-approved, you may not get the best rate because of an error in your credit report. Between now and closing, this will give you some time to correct any issues on your report. Credit reports can sometimes contain mistakes—such as mistaken identities to inaccurate notes on payment histories—that can affect your creditworthiness. Cleaning up your report will improve your credit score and help you obtain a better interest rate.
Finally, if you didn’t work with a mortgage broker to get a pre-approval, you should consider working with one in the future. When you use a mortgage broker, you have an expert who can help you through this process. He or she will help you move through the pre-approval process quickly. The broker will help you gather all the required documentation, note any concerns with your total debt service ratio and credit report, and help you get the best mortgage rate possible.