How to sell and buy a house at the same time
Should you buy or sell first? What’s a contingent offer? Get these answers and more in our guide to buying and selling at the same time.
Rosemary Avance, Ph.D.
You’ve finally decided to buy a house. Before you start looking at listings and visiting open houses, you should strongly consider getting preapproved for a home loan. Keep reading to find out why preapproval is important — and how to get it from a lender.
A preapproval shows a seller a lender has looked at your finances and conditionally approved a home loan.
Mortgage preapproval is conditional approval from a lender for a specified home loan amount. Obtaining preapproval for a mortgage is one of the first steps in the homebuying process. When you have preapproval, sellers know you’re serious about buying and have the financial backing for a purchase.
When you first meet with a lender for preapproval, you provide financial documentation, like pay stubs and bank statements, that helps the lender decide the terms of a potential loan. Once the lender confirms your financial details, it tells you the maximum mortgage amount and gives you a preapproval letter, which you can use to make an offer on a home.
It’s important to point out that a preapproval letter does not guarantee you a mortgage. Once you are ready to take out a loan, the lender will need to verify your financial information to make sure nothing has changed. The property must also meet the lender’s standards. If your financial situation changes or there is an issue with the property, the loan may fall through.
Although the terms are similar, pre-qualification and preapproval refer to two separate mortgage processes, and the differences are important to know.
Pre-qualification is a more preliminary step, giving you a general idea of how much you can borrow. The lender asks for basic information about your income and debt and shows you how much house you can afford. It doesn’t verify the numbers you give or run a credit check. You can get pre-qualified online or over the phone in minutes.
Preapproval, on the other hand, is essentially conditional approval for a loan. You give the lender financial documents, such as pay stubs, W-2s and bank statements, and the lender verifies the information and runs a hard credit check. If the lender approves you, it provides a preapproval letter that shows sellers you can get a home loan. With this letter, you can officially make offers on homes. Preapproval letters are usually good for 60 to 90 days.
There are several benefits to getting preapproved for a mortgage before you start house-hunting.
It gives you an advantage over other buyers: Getting preapproved for a mortgage gives you a leg up on other potential buyers who haven’t contacted a lender or who are only pre-qualified. This can be especially useful in a seller’s market, where it’s not uncommon for buyers to put in offers within a few hours of viewing a house. If you’ve already received preapproval, you’ll be able to act fast when you need to.
You can shop around for the best terms: It’s always a good idea to get quotes from at least two different lenders when you’re shopping for a mortgage. If you get a preapproval letter from one lender, it lets you officially start shopping for a house, but it doesn’t stop you from researching and using another lender. Each lender may offer slightly different terms and rates. Try to get all quotes within a 30-day span to minimize the effect on your credit score.
You can lock in a good rate: When your lender supplies you with a preapproval letter, you may also have the option to lock in the interest rate. The rate you get can be valid for up to 60 days. Not all lenders offer this feature, and many will charge you for it. Locking in a rate can be a smart move if rates are on an upward trend as you’re searching for a house.
You can negotiate: By getting preapproved, you know the maximum amount a lender will let you borrow. Keep in mind that just because a lender approves you for a certain dollar amount doesn’t mean you have to spend that much. If you put in an offer that’s below your preapproved amount and the seller wants to negotiate, you’ll be prepared to do this right away and won’t have to waste time getting back in touch with your lender.
Mortgage preapproval is a first step in the loan process. Here are the steps to take to get preapproval:
Lenders evaluate several factors when you apply for preapproval:
You should seek preapproval just before you start searching for a home. Having the preapproval letter puts you in position to make an offer once you find a house you want to buy.
Remember, the preapproval letter expires, so you want to give yourself as much time for house-hunting as possible. Check the letter for an expiration date so you know how long it lasts. If the expiration date arrives, you still haven’t found a property and you’re still in the market, you’ll need to request preapproval again.
A preapproval letter is an official document from your lender that states the loan amount you’re qualified to borrow.
It typically doesn’t take too long to receive preapproval if you have all your documentation prepared. Most lenders will complete the process in one to three days if everything is in order. If there are parts of your application that are missing, or that fail to meet the lender’s criteria, it will take longer.
Preapproval letters are usually good for 60 to 90 days, after which you’ll have to go back to your lender to get it updated. The preapproval is based on your finances at the time of application, so it’s usually not a good idea to make big financial changes, like take out a new loan or open a new credit card, while you’re in the homebuying process.
If you’re serious about buying a house, you should be serious about getting preapproved by a lender. Most real estate agents recommend you have a preapproval letter in hand before they start showing you houses — especially in competitive markets. If you’re ready to start looking at homes, start by researching lenders and learning more about each one’s preapproval process.
Should you buy or sell first? What’s a contingent offer? Get these answers and more in our guide to buying and selling at the same time.
Rosemary Avance, Ph.D.
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