Real Estate Q&A: Getting Preapproved?
Do we have to get preapproved before looking at a house?
You can go to open houses every weekend to look for a new home, but until you actually plunk down a stack of paperwork and get a mortgage professional to size up your monetary fitness, most agents and sellers won’t consider you as serious buyers.
Preapproval means applying to a bank -- either directly or through a mortgage broker -- for a mortgage and getting a commitment from a lender that if everything checks out with the property and your paperwork, you’re good to go for a specified amount. The cost of this part of the process shouldn’t be more than a small fee for a credit report, but the bank may also charge you the application fee at this time. You shouldn’t have to pay a mortgage broker upfront -- the bank usually takes care of that.
The point of seeking preapproval is to know your limitations and catch any red flags before you get too far in the process. If there’s a problem with your credit score, for instance, you’ll know right away and have time to fix it before you get hooked on a house. If you’re hankering for a $500,000 house but no bank will budge above a $300,000 mortgage, you’ll know immediately if you’re ready to buy a house; you’ll either have to come up with the difference in cash or scale back your expectations.
While you aren’t required to go through this process, getting preapproved is a good first step that you should take, even if you don’t wind up bidding on that particular home or apartment. Here’s why: You’ll know that you’re financially fit to seriously bid on another home in that price range, which will move the buying process along that much faster.
Remember, though, that preapproval is just a preliminary nod from a lender, and there are still more financial details you have to work out before moving into your dream digs. Additionally, the appraisal of the home has to be at or below what you’re paying for it, or else the bank considers it a bad investment.