Pre Approved Mortgage
If you are looking to buy a home you must go through several steps before you can start your home search. The first few steps are similar but different and require different actions from you. One is called: mortgage prequalification and the other is called mortgage preapproval.
Mortgage Prequalification
A mortgage prequalification is the result of an informal conversation that you have with a mortgage loan officer. During your mortgage prequalification interview you will be asked some general questions about your gross monthly income and your monthly debt. You will also get asked about your credit and credit scores. If you know your credit scores, tell them to your loan officer as you will be a little better prequalification. What you get with your mortgage prequalification is an approximate monthly payment you can afford based on the overview of the information you told the loan officer.
Mortgage Preapproval
A preapproved mortgage, or mortgage pre approval, is a more indepth analysis of your credit report, pay stubs, bank account statements, 401K and IRA statements, money market account statements, other credit documentation, and other pertinent information to your loan application. You will also be required to sign a loan application and various other documents from your mortgage company. All of your information is then presented to an underwriter for their review. The underwriter will underwrite your file and give you either an approval or disapproval.
At this point, since you do not have a property picked out, the approval you get will be subject to finding a home to purchase. Once you find a home to purchase and get a purchase offer accepted there will be more paperwork to submit to the underwriter like the appraisal and sales contract. With your loan approval being subject to finding a home, your loan officer can give you a pre-approval letter. You can take your preapproval letter to your real estate agent and in turn your real estate agent will give your preapproval letter to the listing agent and the home seller when you give them your purchase offer.
Most real estate agents will not work with you until you are pre approved. And most home sellers will not consider a purchase offer from someone who is not preapproved. The last thing a home owner wants to do is take their home off the market for someone who is not preapproved only to find out later that the potential buyer cannot get a mortgage. At least with a preapproval letter there is some level of confidence in the prospective home buyer to be able to get a mortgage.
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