Finding your dream house is easily the most exciting part of the home buying process. However, this excitement can quickly turn into heartbreak if you get approved for less than the purchase price, or your offer falls through in today’s competitive market…it happens more than you think. The key to avoiding this heartbreak is knowing how much you can afford before you start looking for a home.
The best advice I give to all homebuyers is to fall in love with the payment before you fall in love with the house.
Trust me, you are setting yourself up for success when you start the homebuying process knowing how much home you can afford. A lot of home buyers make the mistake of looking at homes before getting an official offer from a lender AND an underwriter. The underwriting process can take weeks to finalize and potentially delay closing. Here’s everything you need to know about mortgage pre-approvals and underwritten approvals before you start looking at homes and especially before you start making offers.
Pre-Approved vs. Pre-Qualified
There’s a common misconception that one is “better” than the other when it comes to getting your offer accepted by a seller. In reality, there aren’t a lot of differences between the two. In fact, every lender defines the two differently, or uses them interchangeably. Let me break them down for you in general terms. Both “pre-approved” and “pre-qualified” refer to a letter from a lender offering an estimated loan amount based on their review of a borrower’s financial documents, including a permitted credit check. Think of the letter as an opinion and not a fact when it comes to a guaranteed loan amount. This can be helpful for potential home buyers that want a general idea of how much they can afford before they commit to starting the home buying process.
Underwriting is one of the final steps in the home buying process that usually takes the longest. This is because a certified underwriter has to verify the accuracy of the borrower’s documents and information. They assess the amount of risk a lender or bank takes by giving the borrower a mortgage loan. If everything is cleared, they will pull an updated credit score and finalize the loan. If there are any errors, they won’t finalize the loan until they’re resolved (which can take a while and delay closing).
The fastest way to finalize the closing process is to get an underwritten approval before you find a home and make an offer. Most lenders won’t bring up underwriting until closing. When you send your documents to a lender, ask them to also submit your documents to an underwriter for approval. If everything is verified, the underwriter approves the loan amount and clears conditions before you ever make an offer. That way when you find your dream home, you already have an approved offer that stands out to sellers in today’s competitive market. Once the seller accepts your offer, you can close in as little as 21 days!
Getting an underwritten approval might seem like more work than necessary, but it’s worth it to save time and have that peace of mind when buying your dream home.