Getting pre-approved for a mortgage is an overlooked step should be the first thing any serious buyer does BEFORE looking at properties. A pre-approval indicates that you have spoken with a mortgage broker, and based on certain criteria (credit, income, debt-income ratio, etc.) you have been deemed a suitable candidate for a mortgage. In previous years, just about anyone that applied for a loan would be approved. However, the mortgage business has drastically changed and banks have become stricter with whom they give loans. Getting pre-approved is a must before searching for a home because:
- It will determine the maximum amount of money the bank will loan. There is nothing worse than falling in love with a home only to find out that you cannot afford it. By getting pre-approved, you will know the price range you can afford as well as the terms of the mortgage (down payment amount, interest rates, and length).
- Almost all sales will require a pre-approval letter before the seller considers the offer. Having a pre-approval letter ready will expedite the process of submitting an offer. This is especially important when working with a property that has multiple offers.
If you will be making a cash offer, than you will need to show proof of funds (POF) to accompany the offer. This will show the seller that you have the funds to make the purchase. POF can be accomplished by a recent bank statement, letter from a banker, or sometimes just a screenshot of your current balance.