HUD Articles

In markets where the number of buyers outnumbers the number of homes for sale. In this situation, a prequalified buyer will stand-out and have the upper hand when making an offer. Even if you are in a market that is not as competitive, knowing your budget will give you the confidence needed to go from a "looker" to a "buyer"

Freddie Mac lays details the advantages of pre-approval in the "My Home" section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate broker is many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you can quickly receive your prequalification and move forward with your home search

Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:

1. Capacity: Your current and future ability to make your payments
2. Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
3. Collateral: The home, or type of home, that you would like to purchase
4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it can help speed up the process once your offer has been accepted.

Bottom Line

Many home buyers overestimate their specific downpayment and credit scores that are needed for them to qualify for a mortgage. They are often surprised about their abilities after the speak with a lender. On the other hand, prequalification can also help save countless hours of searching and visiting homes that a buyer ultimately cannot qualify for.  The prequalification is an essential early step in the homebuyng process and will only benefit everyone invloved.