Getting Pre-approved for a Mortgage
by Ellise Walsh

One of the best things you can do to reduce the stress associated with buying a home and getting a mortgage it to obtain pre-approval from the mortgage lender before you head off on your house hunt.

Getting pre-approved helps to eliminate the nightmare scenario in which you find the home of your dreams – the perfect neighborhood, the perfect house, the perfect neighbors. Then you apply for the mortgage and get turned down. What a way to start a home search!

Pre-approval is the process in which the mortgage lender takes a look at your finances – things like how much you have for a down payment and how much your salary is – and determines how much you can afford to borrow. A pre-approval or pre-qualification letter is a strong indication of your creditworthiness.

In addition to the piece of mind it can provide, a pre-approval on a mortgage will put you in a much stronger negotiating position when you are looking at a home. Real estate agents are much more wiling to work with those potential buyers who can actually afford the homes they are looking at, and the home sellers will take offers accompanied by a pre-approval letter much more seriously.

There are actual two forms of mortgage pre-approval. The first one is known in the industry as pre-qualification. A pre-qualification consists of an informal agreement between the potential home buyer and the mortgage lender. In this case, the mortgage lender provides their opinion on how much they anticipate being able to lend you based on the information that you have provided them with. At this point, the mortgage lender has not done any type of background check; they are simply relying on the information you provided them. For this reason it is important that any information you provide be totally honest and accurate. With a pre-qualification agreement, the bank is under no obligation to give you the mortgage if they find that the information is not accurate or if your credit check is not positive. Conversely, the buyer is under no obligation to stick with the mortgage lender and is free to seek a better deal elsewhere. A pre-qualification is simply a quick and dirty ballpark figure on how much you can borrow.

The more serious form of approval is pre-approval. In order to obtain a pre-approval letter, the bank or mortgage lender will actually check your credit history, your employment and salary information, and your assets and liabilities. Any potential buyer who is concerned that he or she will not qualify for a mortgage should take the time and trouble to go through the pre-approval process instead of the faster and easier pre-qualification process. Doing so will put your mind at ease and avoid you wasting time looking at properties that you cannot afford to buy.

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