Why is mortgage preapproval so important? Because it gets the most stressful part of buying a home - the mortgage - out of the way upfront.
Mortgage preapproval provides many advantages and benefits homebuyers in four important ways:
- Address unexpected issues like credit report inaccuracies without the pressure of a closing date
- Learn exactly what you can afford to spend for a home
- Home sellers consider a preapproved offer to be credible
- Close faster and potentially save money
Mortgage preapproval is so important that many sellers and their agents won't even entertain an offer from a borrower who is not preapproved. Consequently, today's serious homebuyers frequently seek home loan preapproval at the start of their home search.
Mortgage prequalification vs. mortgage preapproval
Many people use the terms mortgage prequalification and mortgage preapproval interchangeably. But they are very different.
In its most basic form, a mortgage prequalification involves a mortgage lender or a Realtor or sales associate asking these questions:
- How much money do you have for a down payment?
- What is your monthly income?
- What are your monthly debts?
Based on your answers, the lender determines a home price, or price range, that you "should" be able to afford.
A mortgage prepproval is different. You'll need to place a mortgage application and provide documentation that proves your credit and other financials. From these, a lender can issue a conditional commitment. This conditional commitment ensures that if the property meets the lender's guidelines, and nothing about your profile changes, you'll have a mortgage in place to buy the home you've chosen.
The bottom line is that only a mortgage preapproval gets you this lender commitment. That's why a preapproval letter is almost like money in the bank.
Everything you need to know for mortgage preapproval
This comprehensive six-part guide to mortgage preapproval takes you through every aspect of the preapproval process, from what preapproval is and what purpose it serves to the differences between prequalification and preapproval.
We'll review the documentation you must present to your lender, discuss how long a preapproval can last and give you a look at what an actual preapproval letter looks like. In the end, you should be on a faster, easier and less-stressful path to homeownership!