What is pre-approval?

If you’re a first-time homebuyer, you may have heard of something called ‘pre-approval’ for buying a home. 

But what is pre-approval, and is pre-approval mandatory to buy a home? 

In this blog post, we’ll be defining pre-approval.

What is mortgage pre-approval? 

Also known as pre-qualification or preauthorization, mortgage pre-approval is working with one or more lenders to find out the maximum mortgage you are eligible for, as well as your estimated monthly mortgage payments. 

You will have to talk with your lender about your current financial status and provide them with personal information so that they can run a credit check. 

A pre-approval is the maximum amount you could be approved for and does not mean you will necessarily be approved for it. It will depend on the cost of the property you are looking at, and how much you are willing or able to put for a down payment. 

Where do I get a mortgage pre-approval? 

You can work with a variety of lenders to get your pre-approval and actual mortgage. 
You may use a bank, credit union, mortgage company, insurance company, trust company, or loan company. 

It is best to speak with a variety of lenders to find your best pre-approval. Different lenders offer different interest rates and conditions depending on which products they have available. You will want to ensure you are working with a company that you feel you can trust, as it will be difficult to switch once you have accepted a contract with them. 

What is a mortgage broker?

In your pre-approval process, you may work with a mortgage broker. A mortgage broker does the hard work for you - instead of reaching out to companies for loans yourself, the mortgage broker will reach out to them for you and assist you in comparing a variety of options. They are experts in the field, meaning they will be able to explain the fine print to you and make suggestions on which options will be best for you, your dream home, and your current financial status. 

You will want to check with your mortgage broker to see which lenders they work with - as not all brokers will work with all lenders. If you have specific lenders you’re interested in inquiring about, be sure your broker has those options available or can suggest a similar one they do work with. 

Most brokers do not cost you anything and instead take a commission when they succeed in finding you a lender. 

What will I need for my pre-approval? 

• Information about your assets, income, and debt

• Identification

• Proof of employment

• Proof you can cover a downpayment and closing costs

Is pre-approval a sure thing? 

Short answer, no. Even if you are pre-approved for a certain amount, a lender may still choose to deny your application. This will be dependent on their guidelines and policies. If this is the case, you may be able to be approved for a lower mortgage, higher interest rate, a larger down payment, or with a co-signer. 

In summary, a pre-approval is a great way to know your budget and can help you and your Realtor get started on the right foot. Without a pre-approval, you may miss out on the homes you first find because someone who was pre-approved was able to move first.