Obtain a Mortgage Loan Preapproval for Your Home Purchase

 

A loan preapproval gives teeth to your prequalification, by actually providing you with a loan commitment, albeit preliminary.

You will also find that a mortgage loan preapproval will significantly speed up your loan application processing and, in many cases, give you the inside track during your negotiations with the seller.

Many listing agents and sellers now refuse to accept any purchase offer unless the prospective buyer has already obtained a mortgage preapproval.  This is especially true for experienced real estate agents, who have been burned by previous buyers who were eventually denied financing.

Benefits of Mortgage Loan Preapproval

Unlike a loan prequalification, the loan preapproval provides the buyer with a preliminary mortgage loan commitment from the lender.  The net product of the preapproval is a solid loan amount and a specific mortgage loan program.

If you have not yet selected a property, this preapproval will identify the types of property acceptable for the approved loan program.

This will obviously save you time by avoiding properties that are not within your target range.  It also shortens the processing time required between the time that the purchase contract is mutually accepted and the closing is conducted.

Loan preapprovals are also advantageous negotiating tools.  Many sellers are sometimes willing to accept a lower price offer from a buyer with a preapproval because of the benefits to the seller:

• Time. They don’t have to wait (or worry) for the buyer to apply for and receive financing approval.  Remember that the loan application process can take up to two months for some borrowers.  With a preapproval, the parties can reasonably expect to close within two to three weeks.
• Security. Sellers will not have to gamble on unqualified borrowers and take the property off the market during — especially during the buying season.  Keep in mind that when the seller accepts an offer from one buyer, they are precluded from accepting or soliciting additional offers from any other shoppers.  If they accept an offer from a buyer who eventually is unable to obtain a mortgage, they have essentially lost time and other solid prospects.
• Money. Every day that the seller remains in the subject property is an additional day of mortgage, tax and insurance payments.  With a preapproved offer, the sellers can avoid paying two or more months of housing payments.

At the very least, given two similar offers, the seller will be more apt to accept a preapproved offer — rather than gamble on a buyer still seeking a mortgage loan.

Applying For Mortgage Loan Preapproval

A complete preapproval application, with all required supporting documents, is required for a mortgage loan preapproval.  The preapproval will verify, document and analyze the applicant’s income, employment, credit and general qualification.

The preapproval will have standard conditions, such as selection of an acceptable property, sufficient property value and final verification of your financial status.  However, it does provide you with the peace of mind and negotiating position to make your home-buying experience more rewarding.

It’s always a good idea to shop around, but shopping for a loan the wrong way can actually hurt many such borrowers. Multiple recent inquiries on a person’s credit report can quickly lower a person’s credit score. Every time you apply for credit or a loan, and the lender pulls your credit report, an inquiry shows up on your credit report for at least the next 90 days. If you apply with more than one lender as you shop for a loan, your credit score will decrease with each new lender with whom you apply.

The best way to apply with multiple lenders is to obtain your credit report yourself directly from the three major credit bureaus.

Do not go through intermediary agencies or credit companies. This can be done on line. Make sure that your credit reports contain both your credit score and your full account-by-account credit history.

Then, as you shop around for a loan, have the lender prequalify you based on these credit reports. Tell each lender that you do not want them to pull your credit report — until you decide to move forward with a preapproval application. This tactic will avoid multiple and unnecessary inquiries on your credit report.

Go to next HomeBuyer Guide chapter: “10. Shopping For Properties”