Pre-approval means you’ve met with a loan officer, your credit, income, and assets have been reviewed, and the lender believes you can qualify for a specific loan amount with one or more mortgage programs. Based on this, the lender provides a pre-approval letter that shows your borrowing power.
You can visit multiple lenders to get pre-approvals, but keep in mind that each credit check shows up on your report and could slightly lower your score. While pre-approval is not a final loan commitment, the letter demonstrates to sellers that you’re a serious and qualified buyer — increasing your chances of having your offer accepted.
Real estate financing is available from numerous sources such as banks, credit unions and mortgage brokers and in some cases individuals, who are licensed to do both such as us at the Seattle Area Real Estate Team. Licensing of loan originators is now a national requirement so be sure to check that the person you’re working with is licensed to do so.
The loan originator will carefully review your financial situation, including your credit report and other information. They then will then suggest programs which most-closely meet your needs. For instance, a first-time buyer may qualify for a government backed mortgage program with little money down and low interest rates, while a repeat purchaser (someone who has bought a home before) with more equity (money invested in the home) might want to get a 15-year loan and the lower overall interest costs it represents. Typically, first-time buyers opt for the traditional 30-year loan, with a fixed rate of interest over the life of the loan.
We suggest that buyers start the mortgage pre approval process well before making an offer on a home. By meeting with mortgage brokers or lenders -- either online or face to face -- and looking at loan options, you will find which programs best meet your needs, how much you can afford and get pre-approved.
We also recommend preapprovals for another reason: Purchase forms/addenda require buyers to apply for financing within a given time period, in most cases, 5 days or less. By meeting with a licensed loan originator in advance and identifying mortgage programs, it won't be necessary to quickly find a lender, check credit, and rush into a financing decision that may not be the best option available to you.