Preapproval
Preapproval is quickly becoming the standard for homebuyers. It is basically a full loan application without the property, and once preapproved, the lender makes a commitment to lend you a specific amount.
How It Works:
- All Your Data: You give the lender or broker your personal and financial information and they process the application (pulling your credit history, verifying your income and debts, etc.) as though you were ready to purchase a property. See Required Documentation for a list of what you’ll need.
- Specific, Guaranteed Amount: This allows them to check all of your data to decide what kind of borrower you are; what loan, rate and point combinations they will offer to you; and to offer a specific amount they guarantee they will lend to you for a property purchase (assuming the property you decide to buy appraises for at least the selling price).
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Major Value: Unlike Prequalification, being preapproved is usually very valuable in the home buying process:
- For You: You now have a commitment from a lender to lend a particular amount. No more guessing, or wondering, you know exactly how much you can afford to spend on a house. And when you find the house you want, your loan application will be processed faster and with much less hassle than if you weren’t preapproved.
- For Your Real Estate Agent: Agents love to work with preapproved buyers since they know that the buyer is serious, the lender is committed, and the deal won’t get held up because the buyer can’t find financing.
- For The Seller: Sellers like preapproved buyers for the same reasons as agents. Having a preapproved buyer gives them more confidence that the sale will go through in a timely fashion, and that will make your purchase offer more attractive to a seller.
- For The Lender: anyone who spends the effort to get preapproved will most likely be a customer for that lender (few people have the time or patience to get preapproved with more than one lender, and it’s not something you’d do for fun on a Saturday night); and when you do find the property, processing your application will be easier and faster for them since your data is already entered and verified.
- Decide on a Loan Type: You’ll need to select a loan to apply for. See Loan Types for more information about what’s possible, and talk with your loan officer or mortgage broker about what they recommend for you.
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Lock a Rate: Some lenders will allow you to lock in the interest rate as soon as you are preapproved. This means you have a written agreement guaranteeing a specific interest rate for a period of time (usually 60-90 days). As long as the sale closes within that timeframe, you will get this rate.
This is important when interest rates are going up and you want to get the lowest rate possible (low rates mean low monthly payments). -
Conversion to Mortgage Application: once your offer has been accepted, you’ll need to immediately call your loan officer and tell him or her the address of the property and the selling price.
Then, when the appraisal report comes in, assuming all goes well, they will fast-track your application through the process. Being preapproved can cut several days, even a week or more out of the usual loan processing timeline.
This can be important if you are purchasing in an area with lots of home sales or at a time when many people are refinancing their loans: you don’t want your purchase to fall through because the lender couldn’t process and fund your loan by the closing date. -
Loan Processing Time: Be aware that the mortgage and real estate businesses are very seasonal, and if you hit a busy time, your loan and various reports may be delayed.
- Early December and January can be good times to get preapproved or buy a home, most people don’t house hunt over the holidays so there are fewer applications to be processed, appraisals/inspections/etc. to be done, and your real estate team won’t be overwhelmed. (But try to avoid the Christmas vacation period.)
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July and August are always busy:
- School starts in September and families want to be settled in their new homes beforehand
- Vacations: like everyone else, loan team members take summer vacations so the staff may be short-handed
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