The first step before you start shopping for a home–besides working with a savvy real estate agent, is to get a pre-approval letter.

A pre-approval letter is a formal document from your bank or mortgage company that certifies how much you can afford in a home.  All sellers will require that you submit this document along with the offer contract to prove that you have the means to pay for the property. It’s like having an ID for a home purchase. 

Depending on how soon you need the letter, most lenders can issue you the letter within 24 hours after you submit the required documents. Having a pre-approval letter will help you understand your budget and avoid wasting time looking at homes that don’t fit your budget. Also, many sellers want to make sure the buyers are well-qualified before opening up their home for a showing, especially since covid. 

Keep in mind that it’s common for buyers to shop among lenders to get the best rates, so you don’t need to worry about confirming which lender to work with at this early stage. But it is important to work with a local lender with a good reputation. Your real estate agent is a good resource to recommend lenders. Experienced agents have worked with lenders for many years and have built relationships with them. Working with an unknown or bad lender can cause a seller to be reluctant to consider your offer, especially if they have multiple offers to choose from, so be sure to discuss your options with your real estate agent. A good and experienced loan officer can even help put in a good word for you when your offer is being considered in a competitive, multiple offer situation. 

After your offer is accepted, you usually still have about 7 days to shop among different lenders to compare the best rates. So in the early stages of home shopping, I suggest focusing on getting a pre-approval letter from 1 or 2 really good lenders. Remember, the goal is to get your offer accepted and present the best image of yourself as a buyer to the sellers. 

Does getting a pre-approval letter affect your credit score? It does slightly, because the lender will pull your credit. But if you keep all your credit inquiries within 2 weeks of each other, it counts as one credit inquiry so the impact is extremely small. Everyone has to go through this pre-approval process to get ready for home-shopping! :)

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