What Does Pre-Approved Mean?

Posted by Jennifer Dollar on Thursday, October 2nd, 2014 at 9:44am

When it comes to buying a home, your first step is likely to gain pre-qualification. This step is important, mainly for your benefit. Once you talk to a mortgage specialist, he or she will gather information from you, such as income, expenses, and credit information. The goal is to find out how much of a loan you can obtain as well as what you are likely to pay monthly for that loan. Pre-qualification is just the start, though. Before you start shopping for a home, or during the process, you'll need to go one step further to pre-approved.

What Does Pre-Approved Mean Really?

A home buyer that is pre-approved is one that has the financial information provided by them verified. For example, instead of just asking for your income information, the lender will require paycheck stubs or tax forms to verify it. Instead of just assuming a clear understanding of your expenses is available, the lender will ask for documents showing this information. The verification of your employment, your credit, and even your references at this point helps to provide the lender with a clear understanding of your financial qualifications to purchase a home. This is an important step and one that is required prior to getting a mortgage.

Why Do You Need It Now?

You could go home shopping without pre-approval. Many people do. However, with pre-approval, you'll know exactly what you can spend and how much your payments will be. You can tailor your home shopping to the actual amount you hope to pay each month. Further, many home sellers want to see this on any contract they receive. If you want to place an offer on a home, be sure you have this qualification. It helps show the buyer that you are serious about the purchase and have the qualifications to make it possible. In some cases, the buyer may even require this, especially if there are multiple bids on the home.

You don't have to worry about the pre-approval process, but you do need to be proactive. When your lender tells you what documents he or she needs, get those turned in right away. The sooner you reach this level of approval, the sooner you will be able to shop for and bid on a home that fits your needs. You'll appreciate what that means to you down the road, especially when the actual closing process takes place. 

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