Imagine if you could increase your chances of getting the home of your dreams and make the entire process move faster. Well, you can!
Mortgage preapproval is a process that lets a lender determine how much of a loan you can be approved for. This gives you a clear price range to shop in, shows sellers that you are serious and can help speed up the approval process.
How Does Mortgage Preapproval Work?
To start, mortgage preapproval is not the same as prequalification. To get prequalified, you tell a lender about your overall finances and they give you an idea of how much you may get approved for. This is more of a general estimate.
Preapproval is a more in-depth process where the lender gets the official information needed to give you an accurate mortgage amount that you can be approved for. When you’re preapproved, you get a preapproval letter that you can use during the home buying process.
You aren’t locked into a mortgage with a preapproval, but it can make the rest of the process move faster. After preapproval, you can sign a home contract. Then you will still have to underwrite your loan to make it official.
Since this preapproved amount is based on your most current financial information, the preapproval letter is only good for a set amount of time. After your specific preapproval deadline has passed, you would have to reapply.
During the time between your preapproval and officially getting approved for a mortgage, keep your financial situation steady. It isn’t the best time to open new credit accounts or to rack up charges on existing accounts.
What Is Needed to Get Preapproved?
A mortgage preapproval requires a mortgage application with the required documentation. The lender will also pull your credit report and check into your financial history.
Some examples of the information that may be required for a mortgage preapproval could include:
- Personal information (social security number, for example)
- Employer and income
- Monthly debts (bills, student loans, credit cards, car loans, etc.)
- Assets (Savings, IRAs, 401ks, 403bs, stocks, etc.)
Your loan officer will let you know the specific information needed for a preapproval application. Depending on your particular circumstances, you may need additional documentation.
Why Does Preapproval Help?
When you have a preapproval letter, you can have an edge over other buyers. That letter shows a seller that you are a qualified buyer.
Picture this: you and other buyers want the same house. The other buyers don’t have preapproval, but you do. Thanks to your preapproval, you may have the opportunity to move forward with the purchase faster!