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I am often asked what is being "preapproved", what does it cost, and how do I go about doing it?
This term means you have contacted a lending institution, your credit has been reviewed and a loan officer believes you can readily qualify for a given loan amount with one or more of their specific mortgage programs. Based on this information, the lender can provide a preapproval letter, which shows your borrowing power. You can contact as many lenders as you like and get several preapprovals, but keep in mind that each one carries with it a new credit check, which may show up on future credit reports.
It is important to understand that being preapproved is not a final loan commitment; however, it does demonstrate your financial strength and shows that you have the ability to go through with a purchase.
Obtaining a preapproval letter is an important first step in buying your home because:
This information helps your real estate agent narrow your search to homes in your price range. You do not want to spend time looking at homes that would over-extend your financial resources and put a burden on your living expenses. Knowing the amount that you will be borrowing will help you set up a budget and lay out your living expenses. It also lets the seller know that you have the resources to purchase their home, and encourages them to accept your offer. Taking this first step will help you meet one of the first requirements of an accepted offer, which requires the buyer to quickly apply for a mortgage loan, usually within 5 to 7 days, and obtain a firm loan commitment, usually within 30 days. Obtaining a preapproval amount and letter is a relatively easy process. Most lenders will provide you with this information quickly, often within a few hours, and at minimal to no cost to you. Selecting the right mortgage lender and the best mortgage plan is an extremely important part of the home buying process. There are numerous plans available that vary significantly in interest rates, down payment requirements, and in some instances "points". These variables can make a huge difference in the home that you are able to select for your next purchase. It is to your advantage to take time in this phase of the buying process to make sure that you get the right loan for your specific requirements.
If you need more information or help in this phase of your buying process please do not hesitate to contact me directly through my email address dan@danruese.com or call (586) 598-0700 ext 1885.