What Does It Mean to Get Pre-Approval?

Dated: October 4 2021

Views: 104

Just Getting Started

There always appers to be a myriad of things to do when buying a home. Finding the home is one thing. Then comes offers, inspections, title companies, realtors. The list goes on. If you're a first time hombuyer, or simply wondering around the internet in search of the truth, you may come across the question "what is pre-approval"? This article will explain what pre-approval is and why it is so important when buying a home.

What Is Pre-Approval?

To put it simply, pre-approval has less to do with the house and more to do with the money you are borrowing from the bank or lending institution. Pre-approval is the pre-qualification of a loan or mortgage for a specific range of money.

For homebuyers, getting pre-approved would have something to do with approaching a lender in order to figure out how much they can borrow. This is important when it comes to looking at homes so you know what your price range is. By using credit history and an analysis called debt-to-income ratio where they check how much you make compared to how much you owe on everything, lenders can give an estimate on how much you will be able to afford when purchasing a home.

Does Being Pre-Approved Mean I Am Approved?

Being pre-approved does not already gaurantee you a loan or mortgage for a home. While the name of the process suggests that you may be approved before the loan is initiated, you will still need to go through the process of acquring the loan or mortgage through your lender when you decide to take the option of the loan.

In other words, a pre-approval is a deomnstration to the lender that you are well qualifiied and safe as a lendee. You meet all the qualification that a lender wants, and that's good! Often, the pre-approval process is where a homebuyer can window shop for the best rates and price ranges that they are comfortable with. The lender is not the only one with skin in the game!

Where Do I Go For Pre-Approval?

If you are already with a listed brokerage or real estate agent, you will more than likely be referred by them to several agencies/unions/organizations that can adie you in pre-approval. Even so, it is extremely advantageous to do some of this research on your own since you may find better deals or feel more comfortable. The best advice would be to start a pre-approval with your current bank. You can call or set up a pre-approval on the mobile app of almost any major bank. 

If you are looking for further options, a quick cross search of loan providers near you can give you a list of lenders and their rates. By using this, you are able to match your qualifications to what you like in the lender. Likewise, you can cut the middle man and save plenty of time from what would have been a 2 hour phone call!

The Most Important Step

In summary, getting pre-approved can be one of the most important steps for a homebuyer. It sets up the price range that you need in order to look for a home (although you will probably have some idea, it gives you the limit you may be wondering about!). On top of that, it gives you a bidding number when looking at homes that are hot on the market.

Remember, when looking for a lender, be kind to yourself and do some research to find one that best matches your needs. You may find one that better suites you than the one your real estate agent provides!

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