Q. Should I get preapproved for a mortgage?
A. Lenders are willing to provide a “pre-approval” of a specified loan amount to mortgage applicants after reviewing the applicants’ income and credit. The pre-approval guarantees that, so long as nothing changes from the time of pre-approval to the time of purchase, and the chosen house appraises for a sufficient amount (generally 125% of the loan total), the lender will issue a mortgage for up to the pre-approval limit. There are many benefits to obtaining a pre-approval, including the following:
- Learning about mortgage products: Financing is complicated. Mortgages come in a staggering array of varieties, such as fixed rate vs. variable rate, first mortgages vs. junior mortgages (and combinations of both!), etc. Learning about the various types of mortgages at the beginning of the home purchasing process will provide you with the time you need to carefully choose the product that meets your needs.
- Repairing your credit: Your credit rating will affect the amount of the loan you will be eligible for. If you there are errors or other “blemishes” on your credit report, it is best to deal with these matters as early as possible. By applying for a pre-approval, you will learn what errors or other blemishes exist in time to correct them.
- Understanding home buying costs: There are numerous costs associated with buying a home. During the preapproval process, your lender will clearly delineate what you will need to pay, to whom, and how much it will cost. Having a clear understanding of these costs in advance will help you decide how much you can afford.
- Minimizing disappointment: A pre-approval helps you understand exactly how much house is affordable, and prevents wasting time looking at houses that are out of your price range.
- Standing out from the crowd: If you fall in love with a house, but there are other interested purchasers, a seller is more likely to accept your offer than one from someone without a pre-approval, as it demonstrates the likelihood that the mortgage loan will be approved.