What is Pre-Approval?
Summary: A pre-approval letter estimates the loan amount, term, and type of loan a borrower may be eligible for to buy a house. Lenders will evaluate a buyer’s credit score, DTI, and other financial documents before issuing the pre-approval letter. Due to the financial background check, a pre-approval allows borrowers to shop more confidently. The letter showcases the borrower’s ability to purchase the home and guides them towards houses they qualify for.
A pre-approval is an estimate of the loan amount, type, and terms a potential borrower can qualify towards to buy a house. To receive a pre-approval, borrowers need to fill out an application to have their finances confirmed; this verification process also helps in determining the loan amount, terms, and other information for the pre-approval.
How to Get a Pre-Approval:
The first step is to contact a credible mortgage lender you trust. Your mortgage lender will guide you through the pre-approval process starting with the application. Borrowers need to apply for a pre-approval and need to have their finances verified before receiving the letter.
Mortgage lenders like Hall Financial will have buyers’ information go through an underwriting review, and verify the following documents:
- Credit Score
- Debt-to-Income Ratio (DTI)
Once all information is verified, your mortgage lender will provide you with a pre-approved loan estimate. A Hall Financial 5-Star Certified Pre-Approval lasts up to 90 days.
Why is a Pre-Approval Important?
Pre-approvals are a great first step when home purchasing and hold more weight than a pre-qualification. A pre-qualification uses self-reported information to offer borrowers an estimate of how much money they can borrow. A borrower’s financial history is not verified in a pre-qualification.
A pre-approval letter allows borrowers to shop for homes more confidently. Due to the financial verification associated with a pre-approval, lenders tend to be more confident in a borrower’s ability to purchase the property. The loan amount, type, and terms offered in the letter help real estate agents screen and show homes borrowers qualify towards—making home shopping organized and efficient.
Tips To Keep In Mind:
- You do not have to use the entire amount you qualify for in your pre-approval.
It is often advised to not use your entire estimated loan amount but make an offer you see yourself being able to pay off.
- A pre-approval is not the final loan offer.
A pre-approval is an estimate. When you finalize your housing loan, the underwriter will evaluate your information causing your rates, loan terms, and the amount to possibly change.
For more information, chat with us at callhallfirst.com or give us a call at 866-Call-Hall.