“If you ain’t got no money take your broke BEEP home,” that’s what Fergie from Black Eyed Peas fame says her father taught her about money and the same rings true for buying property.
Looking for a new home without pre-approval for your mortgage is a little like going shopping without your purse, or for that matter the pay-wave function on your mobile phone.
Pre-approval for a mortgage is basically a ticket that you have the borrowed funds available to buy a property. Or said more technically, it’s a written assurance from a lender – that bit is up to you – that you’ll be able to borrow up to a certain amount of money to purchase a property.
Just like a mortgage, it’s based on your income, expenses, employment status and credit history. What pre-approval isn’t, is an estimate of how much you can borrow – so don’t confuse the two!
Why should you get pre-approved?
Frankly some real estate agents will insist on it. When you work with an agent to help you find a property to buy, they want to know that you are the real deal because they will usually be investing many hours of their time searching and inspecting properties.
So in order to protect themselves, some agents will insist that you have pre-approved finance before they get to work.
Getting pre-approval will let you know how much you can actually afford to borrow, which means you can set a limit before falling in love with a home you cannot afford.
Simplify the house hunt
By knowing how much you can afford to spend on a property, you can also narrow down which homes to consider which should save you time.
Often sellers find themselves in the position of having many offers to consider on their property. You want your offer to be the most attractive and having proof of pre-approval can help to make your offer more favourable.
In addition, you may even be able to use it as a negotiating tool if the seller is looking for a quick and easy sale.
It’s a stress saver
Securing a mortgage is almost always a long process. Getting pre-approved might not save you time overall but it can definitely reduce the time needed during the often stressful period between making an offer on a property to when you settle.