What is mortgage preapproval?
4/1/2023 | By Team United
What is mortgage preapproval?
The importance of getting preapproved
Whether you’re looking for your first home or your dream home, it’s important to find out how much you can afford and what listing price you’re comfortable with. A mortgage preapproval should be your first stop to help you set your budget so you can shop smarter and be prepared to make an offer when you find the perfect home.
Mortgage preapproval vs. prequalification
If you’re in the market for a home, you’ve probably come across the terms preapproval and prequalification. These two phrases are similar, but not quite the same.
What is a preapproval?
A mortgage preapproval determines how much money you can borrow to buy a home and is ideal if you are committed to buying right away.
You'll submit an application and provide your income, assets and credit score. If you're preapproved, your lender will tell you how much you can borrow, what your interest rate might be, and an estimate of your monthly payments based on this amount.
This will be a hard pull credit check and is the closest you can get to confirming your creditworthiness without a purchase contract in place. Because this is not a binding contract, your estimated rate and payment may vary and you will need a full approval once you find your home. A preapproval is typically valid for 60-90 days and its expiration date will be listed on your preapproval letter.
What is a prequalification?
A mortgage prequalification is great if you’re not quite ready to commit to buying, but would like an idea of how much you can afford before you start shopping.
To get prequalified, your lender will see if you meet the minimum requirements for a loan to determine roughly how much you may be able to borrow. You won’t have to provide as much information about your finances.
Benefits of getting preapproved
You'll know exactly how much you can afford
It’s easy to start looking at homes that may be out of your price range. A preapproval helps you set a clear budget so you have an idea of what your monthly payments might be based on your borrowing limit.
Remember, your mortgage payment is one part of your budget. Make sure you feel comfortable with the loan amount before moving forward with an offer.
Stand out above the crowd with a competitive advantage
Especially in a competitive market, you want your offer to stand out to the seller. A preapproval tells the seller you’re a serious buyer and helps you to compete with some cash offers.
Act fast and make an offer when you find the perfect home
In some cases, a realtor may ask for a preapproval letter before showing you homes. When competition is high, you risk missing the opportunity to make an offer if you’ve skipped this step. If you’re ready to buy soon, you’ll want to act fast when you find the perfect home.
Bottom line
Buying a home can seem overwhelming, but our experts are here to offer advice to help you determine if you’re ready to get preapproved or prequalified for your mortgage. When you’re ready, reach out to your local mortgage advisor and get one step closer to your next home.
