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Understanding industry lingo and industry-standard procedures will help you better navigate the home buying process. Whether you’re a seasoned homeowner or a first-time home buyer, prequalification and preapproval will definitely be terms you’ll encounter as you search for mortgage options.
What Is A Mortgage Preapproval?
Getting preapproved for a mortgage is a significant step in the home buying process because it means the lender is checking your credit and verifying your financial information. Obtaining mortgage preapproval means the lender has confirmed you qualify for a specific amount of money to purchase a home (subject to conditions like a property valuation). It’s important to note that it’s not a guarantee that you’ll receive a specific rate or mortgage from that lender as circumstances may change from the time you’re preapproved until the time you’re ready to make a purchase. Your final approved mortgage amount will depend on the value of the property and the amount of your down payment. The lender will want to make sure you can afford to pay for all the costs associated with the loan and the home purchase before they offer you any money.
Keep in mind that a preapproval does not suggest you should make an offer without a condition of financing, as there are situations that may arise like a job loss, property issues, change in financial situation, stretched budget, etc., that could cause fluctuations in your income.
You can obtain a mortgage preapproval from mortgage lenders (banks, credit unions, mortgage companies, etc.) or mortgage brokers. Before applying for preapproval you’ll need to know your income, debts and assets and be able to provide identification, proof of employment, detailed information about your assets (savings, retirement accounts, etc.), proof you can pay your down payment and closing costs and more information about your debts or financial obligations (credit card balances, child/spousal support, loans).
Prequalification Vs. Preapproval
Understanding the difference between prequalification and preapproval is an important step in the mortgage application and home buying process.
Mortgage prequalification is generally a very quick and simple process that can take place over the phone. It involves you providing the lender with your basic financial information (income, debt, assets) and having them give you a tentative assessment as to how much they’d be willing to lend you for a mortgage. Prequalification does NOT guarantee a loan, it just helps give you a sense of what you can expect when you apply for a mortgage preapproval.
Mortgage preapproval is what comes next, and this involves the lender actually verifying your information to add more certainty. Preapproval essentially means you’re ready to take the next step in the home buying process!
How Long Does My Mortgage Preapproval Last?
Mortgage preapproval durations are dependent on the lender. This means you’ll want to ensure you ask upfront, so you don’t find yourself losing out on a home you love because your preapproval expired. Most borrowers will be approved for 90 – 120 days which provides a 3 – 4-month duration to hunt for your new home.
It’s also wise to inquire about whether the preapproval can be extended beyond that original term so you know what your options are in advance. If your preapproval happens to expire before you find a home, you can simply reapply. Since you’ll already be familiar with the process and have the documents you need at the ready, your next application should be a breeze.
What To Consider Before Getting Preapproved
Before you apply for a mortgage preapproval, it’s important to consider a few things:
- You’ll need to have access to all the necessary documents lenders will request.
- You may want to work with a mortgage specialist who works with multiple lenders to get access to the best rates.
- Make sure your credit score is strong and your credit report is accurate. If there are any inaccuracies, you can work to have them removed before you apply.
While mortgage preapprovals aren’t required, they’re a necessary step for any serious home buyer. Without a preapproval, it’s difficult to know what your home buying budget is. This can make the hunt for a home very frustrating and time consuming. Many sellers will also not take your offer seriously if it’s not backed by a preapproval as they don’t actually know if you can get the funding to purchase and they won’t want to take that chance.
If you’re looking to buy a home, be sure to do your research so you can approach each milestone feeling prepared and organized. Want to learn more about your mortgage options? Connect with our team!