Why Should You Get a Mortgage Preapproval? Young Couple imageYou’ve found a home that fits your needs and you want to put in an offer. But have you considered a mortgage preapproval? There are many benefits to getting your mortgage preapproved. Here, we’ll go over why this is an important step in the home buying process.

What Is a Mortgage Preapproval? 

A mortgage preapproval means you go to your preferred lender and they approve you for a specific loan amount after analyzing your finances and credit. It means you’re approved to borrow that specific amount for your home of choice. Once you do make your offer, they will re-evaluate you; but typically, the rate will stay the same. 

What Are The Benefits? 

When you get a mortgage preapproval, you’ll know exactly what you’re able to afford before you start looking. This prevents you from looking at homes that are out of your price range. 

As well, you get a locked-in rate – if the standard rates change between the time you’re preapproved and when you make an offer, your rate won’t change. A preapproval is usually good for anywhere from 90 – 120 days – make sure to confirm this with your lender.

This is not always the case, though. If you acquire any new assets between the mortgage preapproval and signing the papers for your new home, they will usually do another review of your finances. Be sure to discuss with your lender whether a fixed or variable rate will work best for you long-term. 

You’ll also have an advantage when it comes to making offers on homes because it portrays you as a more serious buyer. When it comes to purchasing a home, sellers feel better about someone who has a preapproval over someone who doesn’t. So, even if your offer is lower than that of someone who doesn’t have a preapproval, a seller may be more likely to choose your offer because you’re backed by a lender. 

Make sure you explore your options when it comes to lenders as some may give you a better rate on a preapproval than others. It’s always good to check the mortgage rates online and check with the mortgage department of your current bank. This way, you get a broad idea of what people are offering as rates. 

Why Should You Get a Mortgage Preapproval? Mortgage imageHow Do I Get Preapproved?

First, you’ll have to choose your lender; either a bank or a mortgage broker. After that, you can move forward and complete a mortgage application. You’ll then have to supply your lender with the information required to do a financial background check on you. This covers your credit rating, your finances, and any current equity. Once they have processed this information, they’ll let you know the loan amount you’re preapproved for. You’ll also find out what interest rate they’re going to offer you, and get to lock in that rate. 

What Will I Need to Get Preapproved? 

You’ll have to prove your income – this will include, but isn’t limited to, three months worth of pay stubs, two years of federal tax returns, and a statement of your assets. Ensure you’ve been saving up for your down payment, as you’ll also have to prove you have the down payment and closing costs to purchase your new home. A note here: if you received your down payment as a gift, you’ll have to provide gift letters to prove you don’t have to pay the gift back. 

Buying a new home is a rewarding adventure, and you want it to go as smoothly as possible. Getting a mortgage preapproval makes this much easier, and you’ll have a realistic idea of what you can afford. With this information, you can move forward in finding a lender and freely pick your ideal home. 

If this is your first time applying for a mortgage, our Beginner’s Guide to Getting Your First Mortgage will give you a valuable overview of what to expect.

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