Before you start looking for your next home, you should get pre-approved for a mortgage. That can show a seller that you are a serious and qualified buyer. You don’t necessarily have to borrow money to buy a home from the same lender that pre-approved you.
What is Pre-approval and Why is It Important?
To get pre-approved for a mortgage, you will have to submit documents showing your income and assets, and a lender will tell you how much money it’s willing to give you to finance a home purchase. Being pre-approved can demonstrate to a seller that your finances are in order and you can afford to buy a house. If a seller receives multiple offers, a buyer who is pre-approved is more likely to be chosen than one who is not.
Pre-approval and pre-qualification are not the same thing. Pre-qualification simply involves answering a series of questions, while the pre-approval process requires you to submit documents. Being pre-approved carries much more weight than being prequalified.
Why Might You Switch Lenders?
The lender that pre-approved you for a mortgage may not have offered you the best terms available. Your pre-approval letter may state that you’re not permitted to switch lenders, but that’s uncommon. In most cases, you will be free to go with any lender you choose.
It may be in your best interest to shop around for better mortgage terms after you bid on a house and your offer gets accepted. You may be able to get a better rate through a different financial institution, or another lender may have lower closing costs.
Your purchase contract will state that you must obtain financing by a specific date. If you wait too long to start shopping around for more competitive loan terms, you may miss the deadline. That may cause your home purchase to be delayed, or the deal may fall through. Depending on the terms of your contract, you may or may not be able to get your earnest money refunded.
Notify the Seller if You Change Lenders
If you decide to switch lenders and don’t explain why, the seller may assume that your original lender checked your financial standing again and decided not to grant you final approval for a mortgage. Rather than having issues arise due to a misunderstanding, be forthcoming about the fact that you changed lenders and the reason for your decision.
Switching lenders may or may not impact the seller. Some types of loans have stricter appraisal guidelines than others. If the house you want to buy appraises for less than the amount you need to borrow, that may delay the sale. Being upfront about your decision to change mortgage lenders can ensure that you and the seller are on the same page and help you avoid problems or address them quickly if they arise.