Mortgage Q & A: Mortgage Pre-Approval

Q: I'm getting ready to buy my first home, and my real estate guy says I should get pre-approved for a mortgage. What does this mean, and if I do it, am I guaranteed to get a mortgage?

A: Mortgage pre-approval is a good idea for a couple of reasons. It provides you with an affordable price range of homes based on the maximum mortgage amount you qualify to borrow, and it lets sellers know that you can get the financing you need to buy their home.

Pre-approval versus Pre-qualification

It's important to know the difference between being pre-approved and pre-qualified for a mortgage. Pre-qualification is a process in which a lender asks you a few questions about your income, assets and credit, but none of that information is verified and no underwriting is involved. A pre-qualification letter says that based on unverified information provided by you, you *should* or *may* qualify to borrow up to a specified amount. Pre-qualification is a service offered by mortgage lenders, but it does not obligate them to provide a home loan.

Mortgage pre-approval is exactly that -- you submit a full application package with all required documentation and an underwriter evaluates it. If you're approved, the lender issues an approval for a maximum mortgage amount that's good for a specified period, usually 60 to 90 days. A pre-approval letter indicates that as long as the property you buy meets the mortgage lender's guidelines, you can close on your loan -- it's the next best thing to paying cash. Once your offer to buy a home is accepted, the lender will complete the final approval process with an appraisal and title work on the property.

There are circumstances that can delay or complicate completion of a home sale and final mortgage approval, but if you have a mortgage pre-approval letter, you're steps ahead of home buyers who have not taken this important step. If a delay in closing occurs, advise your lender of the situation and new expected closing date. Contact your lender immediately if closing is delayed beyond the expiration of your mortgage pre-approval letter.

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