Shopping for a home is exciting. But before you decide between two and three bedrooms, or fall in love with the perfect backyard, you’ll need to decide how to finance your home and how much house you can afford. 

A mortgage pre-approval is a great place to start and can help you set your budget, compare options, and simplify the mortgage application process. With a pre-approval in hand, you’ll also be able to signal to sellers that you’re a serious buyer.

This guide will explain the pros and cons of mortgage pre-approval and how to get pre-approved for a home loan.

What is mortgage pre-approval?

Mortgage pre-approval is an indication of the loan amount and rate a lender could offer you for a mortgage if you submit a full application. Primarily, it acts as a guide to help you limit your search to homes you can afford.

When you apply for a mortgage pre-approval, the lender will run a credit check and review your income, debts, and assets. This will determine how much of a mortgage you can afford and at what interest rate.

Pre-approval isn’t required, but it has become standard practice in the home buying process. It can:

• Help you shop around and find the best lender, rates, and terms.    
• Open the door to working with agents who require potential buyers to have a pre-approval. It shows you’re ready to make an offer when the right opportunity arises. 
• A pre-approval also can help you get the home you want in a competitive market, showing sellers you’re ready and able to buy.

What’s the difference between mortgage pre-approval and prequalification?

Though similar, mortgage pre-approval and mortgage prequalification are not the same thing.

• A pre-approval is a formalized document that shows a lender has reviewed your finances with an official credit check and determined the mortgage amount for which you’d qualify.
• A prequalification is a bit more general and is often the product of a quick financial review, not a thorough credit check or financial analysis. There’s no hard credit inquiry, and you won’t have to complete a full mortgage application.  

If you’re serious about buying a house in the next 60 to 90 days, a pre-approval is your best choice. If you’re casually comparing mortgage options, a prequalification is a good starting place. But the prequalification won’t be as reliable as your pre-approval or as useful with agents and sellers. 

How to get pre-approved for a mortgage

You can apply for a mortgage pre-approval with any lender that offers a mortgage product, including banks, credit unions, and online mortgage lenders. Some online lenders will require you to complete the pre-approval or full loan application process at a local branch or over the phone.

Regardless of how you apply or what type of lender you work with, you’ll typically be expected to complete a full application and provide certain documentation (listed below). 

Once submitted, the application will go through an underwriter (i.e. software or a person who manually determines your creditworthiness), and the lender will determine your eligibility, terms, and rates. 

Finally, you’ll receive an official mortgage pre-approval letter that you can use to guide your search and show to agents. Typically, this includes:

• The loan type.
• The loan amount and purchase price you’re eligible for.
• Interest rates.
• Loan terms.
• When the pre-approval expires. 

The pre-approval letter will also include information about conditional factors that can impact your approval, such as job loss, an increase in outstanding debt, or a low appraisal on the home. 

See the full article here: Mortgage Pre-Approval