If you've ever shopped for a house, or are thinking about
doing that in the future, then chances are you have thought about
mortgage pre-approval at one time or another. What is
mortgage pre-approval? Why should you get pre-approved?
Is it just something the banks cooked up to rope you
There was a time when I thought that pre-approval was
something that banks thought up to get you in the door and then
keep you there after they pull your credit report, and get you to
bring in all of your verification documents. But now that I've
shopped for and bought a house, I have had the time to research
mortgage preapproval and understand the value and significance of
Why Get Pre-Approved?
There are several advantages to getting pre-approved for a
mortgage. The first is that by getting your preapproval, you
can focus only on houses that are within the range of what the
bank will finance for you. Secondly, getting pre-approved gives
you a leg up over other potential buyers who are not
pre-approved. If two people have put in the same offer on a
house, the buyer is more likely to go with the person who is
pre-approved, knowing that he already has his ducks in a row, and
knows what he can afford. From the buyer's perspective, that
could make the whole process go more smoothly, with less chance
of the buyer backing out because of financing issues. Lastly,
pre-approval gives you the chance to shop around for banks,
interest rates, and even the loan officer you will be working
with to ensure that you found the best interest rate at the bank
that is the right fit for you.
It is also important to note that there is a difference
between pre-approval and prequalification. Prequalification is a
very simple process that takes your word for your income and
credit and then estimates what the bank would be willing to
finance for you. Pre-approval, on the other hand, requires that
you submit documentation proving your income, as well as your
credit history, giving the bank a more accurate basis on which to
Knowing that pre approval gives you a leg up over other
interested buyers, what information do you have to give before
gaining pre-approval? Mortgage pre-approval is based on
your income, assets, expenses, and credit history. You will have
to submit documents verifying this information such as bank
statements, two years of W-2 forms and tax returns for two years.
In addition, you will be asked to sign a release allowing
the bank to pull your credit history.
If you're approved, your lender will send you a letter of
pre-qualification, valid for anywhere from 30 to 90 days, that
states the maximum amount they are willing to finance.
When to Get Pre-Approved?
It is best to get mortgage pre-approval before you even start
looking for a house. Houses tend to get more expensive the nicer
they are, and without knowing exactly what you can spend, it can
be very easy to fall in love with a house you cannot afford.
Before you start shopping for houses, shop for a bank, an
interest rate and a loan officer. Once you have pre preapproval
in hand, you'll know exactly how much the bank will finance for
you, as well as the down-payment expectation on such a loan,
which will allow you to fully realize the financial
responsibility of purchasing a house.
Gretchen Lindow is an Accountant for Hilton Hotels in
St. Louis, by day. When she graduated with her Bachelor's
Degree in Accounting she had $110,000 of student, auto,
and mortgage debt to go along with it. Her family was
surviving financially, but with the impending arrival of
her daughter, and her husband's health starting to fail,
she knew that something had to change. As a result, she
is a freelance writer and blogger at
Retired by 40!
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