Mortgage PreApproval is usually one of the very first steps taken prior to purchasing a home, but many prospective homebuyers do not know what the PreApproval process entails. Additionally, and often confusingly, PreApproval and PreQualification are two different things. Pre-qualification is less thorough and oftentimes just requires a credit check. It returns a ballpark estimate of what the prospective buyer can afford. This step only helps the homebuyer decide on a lender and doesn’t serve much of a purpose when negotiating with a seller.
Preapproval, on the other hand, requires more work. It allows a lender to check a prospective buyer’s financial and personal background to determine how much they are actually willing to loan them for the purchase of a home. The homebuyer then has an idea of how much they can spend on that home. If successful, the subsequent Pre-Approval letter serves as a great bargaining tool when negotiating with a seller. The prospective buyer can submit an offer with confidence, knowing that financing will most likely be available. However, while preapproval is an important first step in the process of purchasing a home, it is not a complete guarantee. Conditions do have to be met prior to closing.
Steps for Mortgage Preapproval
The mortgage Pre-Approval process starts with an application. This application contains extensive information about your financial and personal background. You will also need to provide the lender with documents proving the information provided in the application. The process will run more smoothly and much faster, if you collect proof of residency and identity, recent bank statements, tax returns, pay stubs, financial assets, etc prior to applying for PreApproval. You should also double-check your credit report to make sure everything is accurate and that any issue it shows has been successfully resolved. A mortgage brokerage can help with all of these details. A resourceful mortgage broker will review the application and determine how much various lenders are willing to lend you for the purchase of your new home. A well connected mortgage broker will then shop dozens of lenders and present the best options for your situation, all while only having you submit the documents once and having your credit run once. Going with individual lenders you need to submit all your financials multiple times and have your credit re-run at each lender. Working with a mortgage broker eliminates all of that hassle. In the end, the take away is that a Pre Approval helps legitimize any offer made on a property, while also easing the actual buying process.