How to Get Pre-Approved for a Mortgage Loan

When you set out to buy a home chances are the first thing that your real estate agent will tell you do is to get “pre approved” for financing by a mortgage company. Being pre-approved for a mortgage simply means that you are applying for the loan before you go out house searching and that the lender “pre approves” you for a specific amount before you ever actually go out and buy a home.

Pre-Approved VS. Pre-Qualified

Some lenders will suggest that you be “pre-qualified” instead of being “pre-approved”. These two terminologies may sound similar, but they actually mean two very different things. It’s much better to be pre-approved than to be pre-qualified. Being pre-approved means that the mortgage lender will give you that loan amount as long as you find a house, the house’s title clears and the appraisal matches up reasonably.

Being pre-qualified means much less than being pre-approved does. It’s a much more general statement that a bank can make about an individual and doesn’t actually guarantee that the person will get a loan. Being a pre-qualified buyer means that they bank will probably give you a loan in the event that all of your financials checkout, the home you choose checks out, and that their formulas don’t change between now and when you buy the house. It’s just not as firm of a commitment from the lender.

Why Get Pre-Approved?

Negotiating Power – It’s important to be pre-approved because then you are negotiating from a completely cash position. When you submit an offer to the home, sellers want to know that you can actually pay for the home. If they receive two similar offers, they will much more likely go with the offer that has guaranteed financing rather than the offer that does not. Knowing that the money is there will also give the seller peace-of-mind and encourage them to take their home off the market and move it into a “sale pending.”

Know Your Price Range – By getting pre-approved for a loan up-front, you won’t waste any time looking at homes that are above what the bank says your price-range is. You also won’t waste any time looking at homes that are far below your price range either. You’ll be able to focus your efforts by only looking at homes that you can reasonably afford and be qualified for.

Faster Closing Period – You will also enjoy a much faster closing period by being pre-approved. Typically this 30-45 day process can be shortened to just two or three weeks. If the seller is “motivated”, this will be a big plus to them when considering your offer. You will also likely be able to move into your home sooner than you would have otherwise.

No Surprise Closing Costs - When pre-qualifying you for a mortgage loan, you’ll be given a “best estimate” of what all of your closing costs will be on a loan. You’ll know exactly how much you will be paying and there won’t be any surprise “gotcha” fees when closing on your home.

How to Get Pre-Approved

If you’re looking to buy a home and want to get pre-approved for a mortgage before going home-shopping, it’s actually not that bad of a process. You can go sit-down with a mortgage broker or by shopping online at sites such as www.eloan.com and www.lendingtree.com. You’ll be given all sorts of offers by different mortgage companies. You can find the one with the best deal for your situation and complete the application process. They’ll probably ask for some verifying information such as a pay-stub, retirement account information and proof that you have a down payment. There might be an application fee to apply for the loan, but that’s to be expected.

In many cases, you’ll be able to get an instant response to your application (if you are applying online). Otherwise, you can usually expect to get a letter in the mail in one to two weeks from the lender. They will then give you an offer of how much they are willing to lend to you at a specified rate over a specified period of time.