Mortgage preapproval commonly referred to as preapproval is one of the first steps in receiving a home loan. It is a form of a preliminary check of a potential borrower by a mortgage provider.
It shows the scope of what a buyer is permitted to borrow for a home loan. This is based on a ‘soft’ initial credit check of the borrower’s credit history and background. Credit scores and records play a major part in receiving preapproval from a lender. Normally lenders want to see a low debt to income ratio on the side of the buyer.
Generally, the time frame to receive a letter of preapproval is a quick one. It can take anywhere between 1 to 10 business days depending on the lender.
To speed up the process of preapproval, gathering the right paperwork is essential. This includes details regarding bank accounts, retirement funds, other assets, and properties owned. Additionally, information regarding debts owed and liabilities as well as employment details are also required.
It is important to note that receiving a preapproval letter does not ensure that the loan will necessarily be approved.
Property sellers may prefer buyers with preapproval letters as it shows greater intent from the buyer’s side. It means that the buyer is closer to receiving financing for purchasing a home than a casual browser.
Preapproval and prequalification are sometimes used interchangeably, although they are a bit different. In prequalification letters, the initial check is even more basic and the estimate is even rougher.
After receiving preapproval there are a few more things that a lender or mortgage provider will need to consider for approval. This includes a property’s appraised value, a title check, and the property’s condition.