When you begin the search for a new home and contact your realtor, he or she is likely to ask if you have been pre-approved by a bank or lending institution. Many people get annoyed with this request, but it’s important to understand why the realtor is asking this question and how a pre-approval will save both you and your realtor a lot of valuable time in the process of searching for a home.
First, and most importantly, a pre-approval letter will show both you and your realtor that you can buy a house. Unless you have a large sum of cash to lay down on a property, you’re going to have to obtain financing in order to purchase a home. If you and your realtor start the search prematurely, without first making sure you are able to get financing, you could be wasting time if you find out that your credit score or job situation is going to make it impossible to obtain financing.
Second, a pre-approval letter will show your realtor the price range you can afford. Without this price range from the beginning, you might be wasting your time looking at houses that are out of your price range. If you find out later that you have to downgrade your expectations, none of the properties you see will measure to the initial properties you viewed. This could seriously complicate your search for the best home for you and the best price for your budget.
Finally, never settle for a pre-approval that was given verbally or over the phone. You need the pre-approval in writing to make sure that the offer will stand when you find the home you want and go back to your bank or lending institution to begin the financing process. This written statement of pre-approval will also give you more leverage in your negotiations with the seller—when he or she sees that you have a defined limit in what you can finance, the owner will be more likely to lower the price to fit in that range if they are anxious to sell.
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