The buyer’s market can be a competitive one. What can set you apart from the other bidders? It all comes down to a mortgage pre-approval. Showing sellers you are serious about buying the home makes your bid stand out from others.
Approval from a lender also shows sellers that you are capable of buying the home. You could be in the market for a home, but have no idea how much you can afford. This is a risk for a seller. Instead, showing them you can afford the loan is a step in the right direction.
What is a Pre-Approval?
A pre-approval is not a pre-qualification. They are two different terms.
A pre-qualification just gives you an estimate of what you can afford. The lender does not verify any of your factors. You tell them your income, assets, and estimated liabilities. From there, they determine approximately how much loan you can afford. There’s nothing substantial behind the quote, though. The lender did not verify anything that you stated.
A pre-approval, on the other hand, means the lender verified all of your factors. They looked at your credit history. They evaluated your paystubs and tax returns. The lender uses all of this information to determine how much loan you can afford as well as what program you can obtain.
Based on your information and what the underwriter determines, the lender will write you a letter stating the amount you are pre-approved to have. You can use this letter to help you gain access to home viewings and to place bids on homes.
The Good Through Date
Aside from the loan amount and purchase price you qualify to receive, the good through date is the next most important thing on the letter. Every lender is different, but in general, they give you 90 days. That’s 3 months from the date of the letter to put a successful bid on a home.
What happens if you don’t find a home in that time? You’ll have to go through the process again. A lot can change in 3 months. The lender will need to determine that your credit score didn’t change for the worse and that your income remains the same. They’ll also look at your labilities. They look for any new debts, as that would negatively affect your debt ratio. If you go through the process again, the lender will issue another pre-approval letter good for another 90 days.
Finding the Right Pre-Approval
Finding the right pre-approval means that you must find the right lender. You should apply for a loan with at least 3 lenders. You can do the full-blown application or just get a pre-qualification for starters. This will give you an idea of where you stand with that lender. They can give you a ballpark estimate of rates and fees at this time too.
While the pre-qualification isn’t written in stone and the rates/fees could change, it gives you an idea of what they will give you. From there, you can decide which lender you want to provide you with a pre-approval. Keep in mind, you are not stuck with that lender even after you find a home. If you decide to switch because you found a better deal, you are able to do that. Just make sure you pay close attention to any financial commitment dates on the purchase agreement. You must have a loan that is cleared of any financial stipulations.
Your mortgage pre-approval is your foot in the door of the home of your dreams. If you don’t find that home right away, don’t worry. Even if the approval expires, it’s simple for the lender to re-verify everything and provide you with a new approval.