What is a mortgage preapproval and why does it matter?
A mortgage preapproval is a letter from a lender indicating how much of a loan you can qualify for, issued after the lender has evaluated your financial history — including pulling your credit report and score. With a preapproval letter, you can find a home you can afford by shopping within your means — while showing you’re a serious buyer.
A mortgage preapproval letter can put you head and shoulders above other buyers who may be interested in the same home as you. Getting preapproved will help you find a mortgage lender who can work with you to find a home loan with an interest rate and other terms suited to your needs.
Learn more about getting preapproved and why it’s important.
What is the difference between pre-qualification and preapproval?
A pre-qualification is like an audition, while a preapproval is a dress rehearsal for an actual loan application.
Without digging too deeply into your financial details, with a mortgage pre-qualification a lender can give you an estimate of how much mortgage you’ll likely qualify for and some preliminary loan terms. You estimate your credit score and provide a few details, including the purchase price of a home you would like to buy, your down payment, your monthly debts and how you would want to structure your loan (length, fixed- or adjustable-rate interest, and so on).
With a preapproval, on the other hand, you complete a full application, the lender pulls your credit report and score and puts an offer in writing to give you a loan at a given interest rate.
Even with a mortgage preapproval, your loan still has to go through underwriting — a final stage of due diligence before issuing the loan — after you have a home under contract.
Why should I shop multiple lenders?
In a 2015 report, the Consumer Financial Protection Bureau found that 77% of consumers apply to only one lender when seeking a mortgage. By shopping just three different lenders, borrowers could save more than $3,500 in just the first five years, according to the CFPB’s research, and, in one example, enjoy payments that are nearly $60 less per month.
By applying to several lenders rather than just one, you can compare all-in costs and get the best deal.
Originally Published by Nerd Wallet