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What Is A Mortgage Pre-Approval?

Published:
February 19, 2014
Last updated:
April 1, 2021
MortgageRates

When you are purchasing a home, your Realtor may recommend you obtain a mortgage pre-approval prior to looking for a new home.

There are significant benefits to being pre-approved before you find a home; however, often people confuse pre-qualifications with pre-approvals.

So what exactly is a mortgage pre-approval?

In a nutshell, it’s when the lender provides you (the buyer) with a letter stating that you have been approved up to a specific purchase price. The letter will also state that your income, assets and credit have all been verified. Often a specified down payment and loan program will also be included in the letter but this is not necessarily required.

What Needs To Be Provided For Pre-Approval?

In order to obtain a pre-approval for your home purchase, you will need to complete a full loan application and submit all the requested income and asset verification documents.

Every borrower is unique, but this generally means you will provide documents such as W-2’s and tax returns for two years, paystubs covering the past 30 days, bank statements and possibly other documents that proving your net worth.

Can Things Change Once I am Pre-Approved?

Generally speaking, a pre-approval does have some caveats attached to it. Typically, you can expect to see some of the following clauses in a pre-approval letter:

  • Interest Rate Changes – a pre-approval is done based on current interest rates. When rates increase, your borrowing power may decrease.
  • Property Passes Inspection – your lender will require the property you ultimately purchase to come in with a proper appraisal and meet all inspection requirements.
  • Changes to Your Credit or Debt – Even after you have mortgage pre-approval you should expect your credit to be checked again. Make sure you continue to make payments on-time and don’t add any new debt without speaking with your lender first.
  • Changes In Jobs/Assets – after a pre-approval is received, a change in your employment status or any assets may result in the pre-approval becoming worthless.

Getting pre-approved for a home mortgage will give you more negotiation power with sellers and may help streamline the entire loan process; however, in today’s real estate market a pre-approval letter is seen more like a right of entry vs. an added bonus. Many sellers will not accept offers unless a pre-approval letter is included and many Realtors will not show homes unless their client has first been pre-approved.

It is helpful to start the process early with your potential mortgage provider. The last thing you want is to find your dream home and be stuck scrambling to get pre-approved. Pre-approval is a free service for most mortgage companies and an important part of purchasing your dream home. For a free preapproval contact Sammamish Mortgage at 425-401-8787 today.

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