When buying a home, getting preapproved for a mortgage or home loan can be a really important step. Getting preapproved can help you understand your budget and how much you can afford to pay per month, while a preapproval letter from a lender shows sellers you are serious about buying. However, the process for getting preapproved for a mortgage can be complicated and confusing for new homebuyers.
Keep reading to learn more about what a mortgage preapproval is, how the process works, and what you’ll need to get preapproved.
A mortgage preapproval is the process of determining how much money you can borrow to buy a home and the type of loan you will receive. To determine the size and type of loan, lenders look at several factors including your credit history, income, employment history, and assets. Once the lender is satisfied with their research into your financial history, they will send you a letter that details the size and type of loan for which you qualify.
You can then send a copy of your preapproval letter to sellers of homes that you are interested in to show you are a serious buyer. Today, sellers often expect buyers to have a preapproval letter before they will consider entering into negotiations.
You may have heard the terms prequalified and preapproved used interchangeably, but they are actually different. Think of the prequalified process as dipping your toe in the pool while the preapproval process is more like doing a cannonball. With a prequalification, you provide a lender an overview of your financial situation and they give you an estimated loan amount based on the information you provided. A prequalification can be useful to help you determine your budget, but will not help you make offers.
The preapproval process is more involved. To get preapproved, you’ll need to fill out a mortgage application and provide your social security number, among other things (take a look at the checklist below), for the lender to run a hard credit check. A hard credit check allows lenders to assess your creditworthiness before deciding to lend you money but these types of credit checks can have an impact on your credit score.
Once you receive a preapproval letter from your lender, you’ll usually have up to 90 days to make an offer before you have to reapply.
When you’re heading to your lender to get your preapproval, you need to make sure you have all the documents necessary for the lender to assess your financial situation. Below is a comprehensive mortgage preapproval checklist for you to ensure you have all the documentation your lender requires for you to receive your preapproval.
Ultimately, the mortgage preapproval process is not as complicated as you might think. You simply need to contact a lender, provide them with the information and documents they need to review your financial situation, and then wait for a letter from the lender in the mail that details the size and type of loan for which you are eligible. Once you have your preapproval letter, you’ll be able to make a serious offer on your desired house or property.Ready to get started on your mortgage journey? Our partners at BRP Home Mortgage can help you get preapproved and assist you at every step along the way so you can feel confident you’re making the right decisions. For more information, take a look at their homebuyer tips or contact BRP Home Mortgage directly.