A Guide to Mortgage pre approval

Mortgage pre approval is the first step in getting a home loan. It involves a lender checking your credit and verifying your income, then providing you with assurance that they would grant you a loan to a certain amount. When that happens, the borrower gets a pre approval letter and gains an advantage over other buyers, since he or she can show the home seller that he or she is more likely to buy the house. It is important to note that the pre approval letter is not a guarantee that the loan will be granted. It is also possible to buy a home for less than the pre approval amount.

Over the years, buyers and sellers of real estate have continued to put more importance on pre approval letters of mortgages. The buyers want pre-approvals before they can begin home hunting, while the sellers require these letters before accepting any offer. Real estate agents also want these pre approval letters so that they can bring offers to their sellers and start working with the prospective buyers. Home loan pre approval letters are issued by mortgage brokers or banks and given to a prospective home buyer, stating that he or she can qualify for a mortgage. However, there are several things that real estate buyer should look into before going for a home loan pre approval.

Things to consider before getting a mortgage pre approval

First you should shop around early enough by talking to several lenders to recognize the best home loan package that suits you best. Also, you should consult with the lenders before you beginning house hunting. By that, you will be in a good position to know how much fund you can get from the lender and the houses which fall within your price range. Secondly, you should prepare your financial biography, since almost all lenders will ask you for that.In your biography, you should include things like: bank statements for the previous few months, proof of investment income, federal tax returns for at least the last two years among other things.

Thirdly, you should only work with reputable lenders. Nowadays, most home sellers are look keenly at who the buyer’s lender is, and certainly they would want a buyer whose lender is financially sound and reputable. Ideally, you should opt for banks or national brokerages or their branches within your area. Another thing to consider when getting a home loan pre approval is the time. Most mortgage pre approval letters and the documents they validate have dates of expiry. The expiration date varies date from one lender to the other, although the pre approval letters are usually valid for 90 days. In case you find yourself in house hunting after may be 60 to 70 day, you should ask you lender to re-validate your pre approval letter. However, you should notify your lender on any changes concerning your job status, credit, assets or income before they adjust your pre approval.

Differences between mortgage loan pre approval and pre qualification:

More often than not, people have confused the terms mortgage pre qualification and pre approval. A home loan pre qualification letter is usually given by a loan officer  to you after he has interviewed you and determinied the value of the home loan that you can be given. This does not necessarily give you a loan assurance nor does it involve any cost, rather the letter indicates that you are competent to purchase a home. Mortgage pre approval on the other hand, involves verification of your credit history and record, employment history and assets. Your loan application letter is then surrendered to an underwriter for approval but with some conditions. A pre approval letter is given to you when the loan is pre approved.
Mortgage pre approval procedure usually requires an application fee, since the lender will run a credit check and undergo your employment and financial information verification. Although, a pre approval is a bigger step than getting a pre qualification letter, it is important to note that, a loan is not guaranteed. The loan will be granted after title search, property appraisal and other verifications gets in line with the home that you choose to buy. A home loan pre qualification does not bind a buyer, so he or she can obtain a mortgage form a different lender other than the one who issues a pre approval letter. However, sticking to the same lender who pre approved you shortens the application process after you have found the right house for you.

Advantages of getting a mortgage pre approval

Experts in real estate recommend home buyers to apply for a loan before shopping for their homes. Getting pre approved for a mortgage; however, adds extra advantages than being pre qualified for a loan. First of all, you are in a good position to ask your realtor to send you listings of available homes within a specified parameter, thereby saving time by only checking out the homes that you can actually afford. In addition to that, you are able to spend more time examining the right homes, since you are dealing with homes within your price range. Further more you can examine other things of importance about each home such as the garage size.

Another advantage of getting a home loan pre approval is that you increase your bargaining and negotiating power. It is more likely that with a pre approval, most sellers are likely to accept your offer even if your offer is lower  than the list price. The seller is also in a good position to take his or her home off the market and place it under pending status without any fear. Pre approval of a mortgage also gives you the advantage to enjoy a faster closing period. Since there is no window period when your mortgage is being processed, the lender can speed the whole processing period. When the closing period is shortened; then, your offer is likely to be given a first priority by the seller especially if he or she wants to sell his or her house quickly.