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Why You Should Get Pre-Approved for Your Mortgage
It is important to get pre-approved at the beginning of the mortgage and home buying processes. Getting pre-approved for a mortgage demonstrates your ability to qualify for a certain loan amount prior to making an offer to purchase a property. Plus, because you do some of the mortgage process legwork upfront, getting pre-approved can help you close your loan faster after your offer is accepted. This gives you a big advantage when you are attempting to buy a home because you have removed one of the biggest risks from the process – your inability to obtain financing – and you may be able to close your mortgage faster.
Pre-approval shows sellers that you are both qualified financially and serious about the home buying process. If multiple potential home buyers place offers to purchase a home, the buyers that are pre-approved for a mortgage typically have an advantage over the buyers that are not pre-approved because they provide greater certainty to close and speed to the property seller. Understanding your lender options, asking the right questions and getting pre-approved for your mortgage at the start of the process will position you to successfully obtain a mortgage.
There are several advantages to getting pre-approved for a mortgage, including the following:
- Close your mortgage faster
- Identify and resolve issues with your loan application
- Greater certainty that your loan closes
- No obligation to work with lender if you find better mortgage terms
- Free for borrowers
The pre-approval process focuses on borrower mortgage qualification, what size mortgage the borrower can afford and the borrower's ability to make the monthly mortgage payment and pay back the mortgage. Getting pre-approved requires a borrower to provide certain personal and financial information to a lender. Lenders may require that borrowers submit pay stubs, bank statements and other personal financial documents to verify your income and assets. You may be able to provide your summary income, asset and employment information verbally to some lenders instead of in written form. The lender also reviews your credit score. Although somewhat unusual, some lenders may require that borrowers submit a full loan application to get pre-approved.
Pre-approval typically qualifies the borrower for a specific mortgage amount and a lender may provide a letter or online certificate outlining what size mortgage you are approved for as well as the any conditions. Pre-approval is typically subject to the borrower finalizing his or her loan application as well as lender review and approval of the terms of the home purchase contract, property appraisal, title report or abstract and other documentation required to close your mortgage. The pre-approval letter is usually valid for a specified period of time and expires after 30 or 60 days.
Use our get pre-approved feature to get approved and compare mortgage proposals from multiple lenders. The form is free, no obligation and requires minimal personal information. Getting pre-approved provides an advantage when you shop for a home and accelerates the mortgage process.
Even if you are pre-approved, the lender needs to provide final loan approval after you have selected the property you want to buy and your offer to purchase has been accepted by the seller. Your pre-approval may also be based on a specific mortgage rate or loan program so if interest rates increase or you select a different program, it may affect your ability to receive final approval for your loan. In some cases, mortgage pre-approval may be related to a specific property although typically the borrower is pre-approved and not the property.
It is important to highlight that getting pre-approved for your mortgage is different than getting pre-qualified. Pre-qualification is a preliminary assessment of what size mortgage you qualify for and typically does not require borrowers to verify their income and assets. Additionally, lenders typically do not thoroughly review your credit profile to pre-qualify you. You may be pre-qualified for a certain mortgage amount but if you cannot verify your income or you have negative items on your credit report, you may not be approved when you eventually apply for your mortgage, which makes getting pre-qualified meaningless. The lender usually also does not provide a letter or certificate for a pre-qualification.
Because the pre-approval process requires you to provide more information and involves a deeper review of your income, assets and credit profile, it is more valuable and beneficial to the borrower. When you initially contact lenders about getting a mortgage, make sure that you get pre-approved as opposed to pre-qualified.
The pre-approval process should not charge you anything. If a lender tries to charge you, that is a major red flag and you should immediately cancel the process and choose another lender. Getting pre-approved offers borrowers multiple benefits with no cost.
Just because you are pre-approved by a lender or submit a mortgage application to a lender does not obligate you to work with that lender to finalize your mortgage. Even if you have been pre-approved by a lender, we always recommend that you compare proposals from multiple lenders to find the loan that is right for you. You may find a lender that offers a lower mortgage rate or closing costs in between the time you are pre-approved and the time your offer to purchase has been accepted by the seller. Because you are not required to work with the lender that pre-approved you, you are able to maintain your flexibility while limiting your downside risk.
Even if you are pre-approved we always recommend that you shop lenders to find the best loan terms including the lowest mortgage rate and closing costs. Contact multiple lenders in the table below to compare loan terms. Shopping for your mortgage is the best way to save money on your loan.
Sources
“Get a prequalification or preapproval letter.” CFPB. Consumer Financial Protection Bureau, 2017. Web.
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