- Should I wait till last moment to shop for mortgage?
- Should I always get my mortgage preapproved?
- What need is there for preapproval if mortgages these days can be approved in couple of days?
- What are the pros and cons of preapproval?
- Do I have to work as hard for refinancing as I did for my first mortgage?
Waiting till last moment can have disastrous consequences. Let’s just assume that without pre-approval you found a house after so much search and now you signed an offer conditional upon mortgage approval. Because of lack of enough time to find a suitable mortgage that fits your needs. In a hurry you have to get whatever is being offered or you lose the house if financing could not be arranged on time. Same is the situation with a person who needs to refinance his existing loan with the only difference that you already have a home for which you need to refinance.
Never wait till last moment. Why wait so long and make mistakes that may not ruin your life today or you may not see the trouble now because of excitement of getting your first steps into your own home but they will definitely come to haunt you in the long run and you may not be able to keep your dreams of your own home alive for so long. You may not feel the urgency to get pre-approved mortgage because you think that these days mortgages are very easily approved in just couple of days. Yes that is true you can wait till last moment and still be able to get a mortgage in a few days but at what cost? You may get higher interest rates or closing costs, no early payments option, high penalties for missing a payment and so many other unfavourable terms and conditions that can tag along hurriedly done mortgage. And any of the single bad items mentioned above may kill your dreams or at least make your life miserable because such a huge investment is at stake.
Pre-approved mortgages have their pros and cons. With a mortgage in your hand you know what you can afford and that gives you the leisure of searching a right house and seller may find it a plus that you already have a mortgage and therefore be willing to sell you at favourable terms. But you should also consider the time frame after which pre-approved mortgage expires. Usual time frame is up to 90 days. Once you have the pre-approval don’t just stay calm. You can have more than one pre-approval from different lenders and choose one that suits you most. It is also one of the draw backs of pre-approved mortgages that people usually feel very relaxed that they have secured a mortgage and next step is only looking for a house.
Should one always get a mortgage pre-approved? Yes, yes, yes. Why not? Usually pre-approved mortgages lock the rates for you for a certain time frame and if rates go up you still get the previously committed rate when interest rates are on rise. But let’s analyse a situation when interest rates are going down and when you actually are ready to sign a mortgage; you my find the market rates lower than when you signed the pre-approval. Still not bad because in this situation you can either look around for another mortgage deal because pre-approval does not tie your hands. It is up to you whether you want to use that or negotiate another deal. At that time you may negotiate the new rate with the same lender or any other lender you like. Also inquire from lender whether time starts from the date of application or date of approval of pre-approved application. That may give you few more days of peace and tranquility.
I have seen people breaking up just because they signed a bad car loan or signed a loan they could not afford later. So why make such foolish mistakes. There is no need to rush into a bigger home either because of social circle pressure or just because you want to look a rich person. First home you buy should be very realistic and after managing that home successfully you may have built enough equity that you can use to buy a bigger and better home later.
