Why Mortgage Pre-Approval is So Important

Before beginning to shop for homes it is important that potential homebuyers have a clear financial picture of their personal income and whether they will need the help of a lender to make a home purchase. When mortgaging a home it is always best to have a clear picture of what that mortgage will look like before searching for a potential home to purchase. The best way to do this is with mortgage preapproval. When it comes to home shopping some home buyers make the mistake of not looking into a clear mortgage plan or settling for prequalification.

How is mortgage preapproval different from mortgage prequalification?

Both mortgage preapproval and prequalification give you a picture of what a lender could be willing to lend for your home purchase. But they are just a little bit different and this small difference can make a huge impact on your home purchase strategy.

Pre-qualification

Prequalification is like asking a contractor to come and give you a general estimate of the work you need to be done. It is a very quick overview look into your situation and then an equally quick very broad estimate of what type of service can be offered. When you have a contractor come and look at something you need to fix they give it a quick look without getting into the finer details. For example if you take your car to a mechanic and they diagnose the issue but tell you they don't know the whole scope of it without actually getting in there and doing the work it is not uncommon that when you finally do take your car in there's additional problems that need to be addressed and is not uncommon for the job to end up costing more money.

A pre-qualification is an overview of what a lender could possibly be willing to give you by asking you some questions about your current financial situation without taking time to dive into the finer details of your finances. A pre-qualification is a very general overview estimate. It can help you as a launching point but without true confirmation of your finances to verify it, you may be surprised when you go into the actual loan approval process.

Preapproval

Preapproval is an in-depth look of your current financial situation where a lender will verify with documentation items like your credit score, your debt to income ratio, and your income as well as your employment. When these things are documented and verified a lender can give you a more solid look into what type of loan they will offer you. While this is still not official loan approval as you are not officially asking to lend money for a specific amount on a specific property; it is as close to approval as you can get without actually having a home purchase offer in place.

The benefits and strengths of loan preapproval

Seeking out a preapproval instead of qualification gives you more clarity and is one step closer to actual mortgage approval. It will help you to better determine your homebuying budget and what target purchase number for a home would be healthiest for you personally.

A pre-approval letter is also a huge asset when it comes to making a strong purchase offer when you do find a home. It communicates to the home seller that you are a strong candidate and have a better likelihood of loan approval as compared to other buyers that are only pre-qualified. It gives you more confidence in being able to secure a loan as you have already gone through more of the detailed process of approval as compared to just prequalification. It also can communicate to a home seller that you are much closer to final approval.

The best way to look for mortgage loans is to make sure that you are looking into more than one mortgage option. Just as most people don't look at only one home it is a good idea to look into more than one home loan. A great way to do this is by talking to a mortgage broker who will do the shopping process for you and help you decide between your best options.

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