Why getting a home loan preapproval is a good idea.

Why getting a home loan preapproval is a good idea. First of all what is a home loan or mortgage preapproval and why would you need one?

Picture this scenario… after months of research, deliberating, thinking, deliberating again, convincing your wife that the extra games room is a complete necessity and a great investment for the future, you have decided to purchase your dream home. Everything is set, you’re about to change the children school, you’ve told all your friends. But just when you thought everything was set your bank is dragging their collective feet and you’re just waiting for an answer. You can’t see what the problem is, you already know you can afford it and the price of the home is reasonable. You even provided collateral security for the home loan. Nevertheless the bank will not reply, the owner is getting tired of waiting, the reason the price was so low was because he wanted to sell fast. In the end he finds another buyer, he is happy to give you back your deposit with the penalty fee you agreed on, but that’s beyond the point, you lost your dream home.

Or picture this other scenario. You spend eons finding a home you feel you can afford and that meets your requirements. You spend money on the valuation, the lawyer, time and effort in visiting and bargaining with the owner. You finally set a price you can live with and then the bank says they cannot lend you that amount. You don’t only not have a home, it has cost you a lot of money you don’t really have to spend.

Both of these scenarios would never have occurred if the buyer had arranged a loan preapproval with his bank of lending company. These home loan preapprovals are agreements between a bank or lending company and a prospective client over how much the bank would be willing to lend the client. This preapproval is based on the client’s credit score, income, and collateral securities. Once you know how much the bank would agree to lend you, you have more bargaining power with sellers.

This will increase the chances of getting a good deal as the owner of your future home is sure you can afford to buy and he won’t be wasting his time with you. It also speeds up the whole operation saving money on both sides. Banks also appreciate customers that plan ahead like this and will even extend better interest rates and cheaper management costs.

So whether you are looking for a fast transaction or need to know how much you can afford to spend, getting a preapproval for your mortgage or home loan is a great idea. You don’t only make the whole transaction less painful and easier to handle but are very likely to get a discount in the bargain.