Getting your hands on the mortgage preapproval letter is the fastest way to land your dream house once you find it. It will take preparation and patience, but it will make you attractive to sellers as well as help speed-up the buying process -a nice perk when you're competing with other buyers in a hot market.
Here are the benefits and costs of a mortgage preapproval and why you need to have one according to Trulia:
What about prequalification?
Don't confuse prequalification with preapproval; while the former is a much quicker process, it is not an official document that could improve your loan as it is given just based on the information that you provide.
"A big piece of that puzzle is the prequalification piece - some [buyers] will come already having spoken to a lender, either with their own initiative or at our suggestion," says Atlanta-based RE/MAX agent and team leader Maura Neill. "For the rest of them, we discuss the importance of getting prequalified, not just to protect themselves and to make sure that we're only viewing homes that they can afford, but also to strengthen their position as a buyer."
Benefits to mortgage preapproval
Although a mortgage preapproval takes a little longer to obtain than a prequalification, it probes deeper into your credit and it could give you an actual dollar amount that your mortgage is approved for, and might even give you an idea of the interest rate that you'll be charged.
You will have an advantage with the sellers since a preapproval can get you conditional commitment to the loan amount. "You must know how much you can spend before you can spend it," says Michael Barbolla, chief operating officer of New York City-based brokerage firm Charles Rutenberg LLC. "Sellers and their brokers will want to know you are qualified to purchase their apartment before they will begin negotiations. The preapproval will give the buyer a good-faith estimate at the outset as to what the closing costs will be for the transaction, and these numbers should be built into the financial picture for the transaction."
Caveats to mortgage preapproval
A mortgage preapproval has an expiration date, so you should not waste time making offers. Aside from that, a preapproval take more money than a prequalification because of application fees and other upfront costs. It also comes with hard inquiries to your credit which may hurt your score.
But most real estate professionals believe that it's worth doing. "There really is no downside," says Neill. "There are so many benefits to getting prequalified, and even more to getting a full preapproval prior to making an offer."