Mortgage Preapproval: First Step in The Home Buying Process

The Importance of Obtaining Mortgage Preapproval

Pre-Approval sets buyers up for success and provides a more streamlined home-buying process. How do you get preapproved? What’s the difference between preapproval and prequalification?

Mortgage Pre-Approval vs Pre-Qualification

When you’re prequalified for a home, you’ll receive an approximate judgment from your lender of your loan borrowing power and interest rate. Lenders make this assumption based on your finances and credit check. Prequalification is a great opportunity to discuss your loan options, mortgage rate, and goals with your lender. Prequalification is generally a quick process and scratches the surface of your validity as a homebuyer.

On the other hand, mortgage preapproval is the ultimate authentication of your creditworthiness and loan borrowing power. Lenders will request you complete a mortgage application in order to verify your information and run a more thorough check of your credit standing and history. Once complete, your loan officer will provide a preapproval letter, also known as an offer to lend you a specific amount with a certain interest rate. Preapproval letters are valid for 90 days and may be required to be included in your offer on a property.

Neither a prequalification nor preapproval is a guarantee you will secure a loan from the mortgage company. Once you submit an offer on a home and the seller accepts, your lender will provide an official approval and good faith estimate outlining your total mortgage loan costs, including your loan amount, term, interest rate, mortgage insurance, origination charge, and more.

Perks of Preapproval

It’s important to find out your home-buying budget before you start looking to avoid wasting your time and energy. A pre-approval will help you know your mortgage payment limits, making you more efficient and competitive on the market. With a preapproval letter in hand, sellers will take you more seriously and shows proof of your ability to purchase the home. Another benefit of getting preapproved is saving time at the closing table since your financial information has already been provided to your loan officer.

How to Get Preapproved

The first step is to speak with your lender, if you do not already have a loan officer on standby, ask your real estate agent or family and friends to get referred to a trusted professional. It’s a good idea to shop around and see what loan options and rates are available to you through different mortgage companies.

It’s very important to have a good relationship with your loan officer and be familiar with their services. Get to know them and what they have to offer you as a homebuyer and their guidance in obtaining a mortgage loan.

Before you receive a mortgage preapproval, you will work with your lender to verify your financial information and you’ll most likely receive a prequalification letter detailing your maximum loan amount and given interest rate. After getting prequalified, you’ll provide further financial documentation to your lender to start the mortgage preapproval process.

What You’ll Need for Preapproval

Getting pre-approved is essentially the process of submitting a mortgage application. Your lender will look at every aspect of your finances, meaning you will need to provide proof of income, employment verification, proof of assets, credit history, identification, and a debt-to-income ratio. Be prepared to have these documents ready when inquiring about a loan: