An essential first step in the home buying process entails getting pre-approved for a mortgage loan. The process involves a thorough review of your financial situation and allows you to determine the size of the mortgage loan for which you qualify.
With the assistance of a mortgage professional, the pre-approval process can be completed in one day and it’s well worth the effort – it allows you to basically forget about financing and get on with your home search.
Once pre-approved, the lender will provide you with a letter promising to loan you the agreed upon amount. This letter is as good as money in the bank and it can considerably strengthen your home purchase offer because it proves to the seller that you will be able to raise the funds required to close on the real estate transaction. This edge is especially important if you’re bidding in a multiple offer situation.
Getting pre-approved involves completing the entire mortgage application process, which means that the lender will have verified your income statements, employment history, credit rating, financial liabilities, down payment, cash-on-hand for closing costs and any of the other factors that help determine your buying power. The pre-approved loan, which typically is valid for 60 days, can also include a locked-in mortgage interest rate.
Don’t confuse getting pre-approved with getting pre-qualified, the latter carries little weight. A pre-qualified homebuyer has merely received from a lender an estimate of the size of the mortgage loan for which the homebuyer may qualify. None of the pre-qualified homebuyer’s finances have been verified and this can spell trouble at the closing table if the loan falls through.