What is a Mortgage Preapproval?
Q: The thought of buying a home brings up a lot of questions. What are the most common questions you help people answer?
A: You’re right. We do receive a lot of questions. The most common are preapproval questions, like how much can I afford? What are the costs and fees for the mortgage? To answer most of these questions we do what is called a pre-approval, where we show people a complete breakdown of the total cost of the mortgage and what their monthly payment would be.
Q: Tell us a little bit about how the preapproval process works.
A: A preapproval is when a lender assesses your total financial situation. They review your credit score, your income, your assets, and your expenses. From there, they can calculate an approximate loan amount. For example, a borrower may think that they can afford a $2,000 a month payment, but after going through the pre-approval process, they realize that a $1,500 is much more affordable.
Q: Do you have to have a preapproval in order to buy a home?
A: Not necessarily, however most real estate agents won’t work with you until you have been pre-approved by a mortgage lender first. Plus, the sellers of the home will also take your offer more seriously when you have been preapproved for a mortgage. Really a preapproval is assurance that you can get financing.