If I were to be asked what's the best piece of advice I could give a home buyer in today's market, I wouldn't even hesitate in suggesting that the person(s) concerned obtains pre-approval for a mortgage before starting the house hunting process.
There are a few great reasons why I say this, but first let's make an important distinction between pre-qualification and pre-approval, not least because they are often imagined to be the same thing, which they most certainly are not.
Pre-qualification is essentially a lender's best estimate of what you can afford to borrow. That's useful info, of course, but it is not a guarantee that your mortgage application will be successful.
It's preferable to seek pre-approval. This involves a formal application process, including credit score checks etc., and the end result is a firm commitment from the lender, based on your overall financial situation.
The most immediate benefit to you will be that you will be taken much more seriously by sellers.
With many local market sectors enjoying seller's market conditions at the moment, it's often the case that the seller will receive multiple offers. Although there are a lot of variables here, buyers who can show proof that they will qualify for a mortgage that meets the offer value are more likely to be successful, as this greatly reduces the chances of the sale falling through and also usually promises a faster and smoother closing process too.
If you imagine yourself as the seller, I'm sure you will agree how welcome pre-approved buyers are, in comparison to those who only have pre-qualification, or perhaps no level of financing confirmation at all...
Getting pre-approved really can take a lot of stress out of your home search. You're pretty much guaranteed a smoother transaction as a direct result and, something that's often overlooked, you will be able to be more realistic about what homes you can afford, enabling you to focus much more sharply on likely properties, rather than having to adopt an often confusing and unsettling scattergun approach.
Remember, too, that your bargaining power is enhanced. Because you have demonstrated that you can afford a certain level of property, you know your personal limits so much better and you just have more confidence in general and, very often, more flexibility in how you tackle the whole business of house buying.
And with the continuation of ultra-low mortgage rates, pre-approval greatly enhances your ability to lock-in the lowest possible monthly repayments for the life of the home loan.
It really is all good news.
While we're on the subject of mortgages, it's worth noting that the trended credit data we looked at in a blog a few months ago has now, finally, been introduced.
In essence, this enables lenders to look more closely at how home loan applicants manage credit, including whether credit cards and other loans are paid off in full each month, in part, or just at minimum payment level. This is a far more forensic analysis of applicants' credit histories and is intended to help those people who manage their finances well to be more distinct than ever before, in comparison with those who control their affairs less efficiently.
Indeed, if you've been turned down for a mortgage previously but can demonstrate excellent borrowing behavior, it may well be worth reapplying for pre-approval to see if the new system might benefit you.
As ever, contact us if you have any questions or concern in this area. We have great connections with top local mortgage financing experts who can offer you the very best advice, whatever your situation.