In our last post, we discussed the advantages of being pre-qualified for a home loan. But what are the advantages to skipping this step altogether, and going straight for pre-approval? Read on to learn more about mortgage pre-approval and the benefits of choosing this route.
What Does It Mean to Be “Pre-Approved?”
Requesting pre-approval for a home loan involves more than that required for pre-qualification. With a pre-approval, the lender performs an evaluation of your financial ability to take on a mortgage, and to what extent. This includes a close look at your income, debts and assets. The financial institution determines the amount of money they’d lend to you based on the documents you provide (financial statements, tax returns, pay stubs, etc.) along with your credit score. You’ll be asked to complete a mortgage application, which often carries a nominal fee.
If all goes well, the lender will then pre-approve you for a mortgage, and provide you with a pre-approval letter. This includes the precise loan amount, up to which you can borrow, and your estimated interest rate.
Benefits of Mortgage Pre-Approval
- Gain an exact idea of the maximum loan amount for which you qualify.
- Give more clout to your interest in a home. Being pre-approved shows the buyer’s agent that you’re serious about purchasing the home he or she represents.
- Increase your chances of a seller accepting your offer, especially during a bidding war. Pre-approval enhances your ability to negotiate on your dream house.
- Minimize time to settlement. Though you’ll still need to complete the mortgage process, you’ll have a head start on the game and decrease the time it takes to close.
In short, pre-approval puts you closer to securing a home loan when compared with pre-qualification, though there are benefits to the latter as well (refer back to our post on mortgage pre-qualification). Perhaps pre-qualification is likened to browsing or “window shopping,” while pre-approval indicates an intent of looking to buy. In either case, it’s always best to do your due diligence and determine the right course of action for you.