What is a Mortgage Pre Approval and How Does it Work
Are you thinking about purchasing a home, getting pre-approved is an essential step. With this letter in hand, the process can move more quickly, facilitate negotiations, and give you greater bargaining power during negotiations for the perfect house.
Though not the only way to be approved for a loan, it can be an effective tool that provides security about your finances and indicates how much you can afford. Furthermore, having this kind of assurance gives you greater assurance in your home-buying endeavors, making you more attractive to sellers since they know that you’re serious about making the purchase.
Pre-Approval Vs Pre-Qualification
A mortgage pre approval differs from a pre-qualification in that it utilizes verified information, while the latter only estimates how much you might qualify for based on income and credit history. A pre-approval letter outlines both loan amount and interest rate so you can more precisely calculate how much you can spend on a home.
Calculating how much home you can afford helps you budget and make informed decisions about what type of house to look for. It also serves as an advantage when negotiating with sellers, since it demonstrates your seriousness about purchasing their property and has the necessary financial resources.
Obtaining a Mortgage Pre Approval and How It Works
A mortgage preapproval is more comprehensive than prequalification, requiring additional documentation from you. In addition to your credit application, a lender will review your pay stubs, bank statements and tax returns in order to assess your financial health and determine how much money you qualify for borrowing.
Mortgage preapprovals typically last 90 days and appear as an inquiry on your credit report. Therefore, it’s wise to apply for a preapproval as soon as you know your price range and have access to a real estate agent who can guide you through the process.
Before applying for a preapproval, you should always consider working to improve your credit score. This could involve paying off debt, increasing savings or rectifying inaccuracies on your report. It may also be beneficial to seek a second opinion from another lender than the one you originally chose.
The Mortgage Pre-Approval Process
A mortgage pre-approval is a more thorough assessment of your loan eligibility than prequalification, and requires a hard credit inquiry that could negatively impact your credit score in the short term. Furthermore, this decision could ultimately prevent you from being approved for a home loan down the line.
This can be a tedious and time-consuming process, but it’s essential for getting the best mortgage terms possible. In many cases, this step can be completed online or over the phone.
It can take as little as one day, but it could take longer if you have numerous credit issues or financial roadblocks to clear. By providing your lender with all of the necessary documents, they may be able to expedite processing even when faced with these obstacles.
