Getting Pre-Approved For A Mortgage

Prequalified vs Preapproved. Getting prequalified for a mortgage is a quick and easy process. It can be as easy as speaking to a loan officer over the phone and answering some general questions about your income, expenses, and employment.

The loan officer will use this information to give you an estimate of approximately how much money you could borrow at current interest rates. He can even provide you with a letter with the amount indicated on it.

Picture this: you and your honey have been looking for a house to call your own for a few months now. You've seen dozens of houses all over town. But none of them are right. You're losing patience and you're starting to think you'll never find your dream home.

But then one day when you're out with your realtor, you stumble on the most charming little house you'd ever seen. A modern kitchen, a big backyard, and a wraparound porch. It was everything you ever wanted in a house.

You immediately make the sellers an offer they can't refuse. All you have to do is obtain financing from the bank.

You give your landlord notice that you're moving out and start picking out curtains for your new living room, and then it happens. The loan officer from your bank calls to inform you that your loan application has been rejected. Your current income is far too low to cover the anticipated expenses of a mortgage, homeowner's insurance, and property taxes.

Your dream home is out of your reach. What's even worse is that you already spent hundreds of dollars on the home inspection and non-refundable loan fees.

Of course you could have saved yourself a lot of heartache if you had been preapproved for a mortgage.

But since he is not actually verifying any of the information you give to him, he is under no obligation to actually loan you that amount of money. It's possible that when he does check your credit report and research the information you provided he'll determine that he can only loan you a lesser amount.

For this reason, I consider prequalification a complete waste of time. Instead, get yourself preapproved for a mortgage. The lender will actually pull your credit report and will require you to provide additional paperwork such as pay stubs to prove your salary and place of employment.

The lender can then run an accurate calculation to tell you exactly how much you can borrow. You'll know exactly what you can afford and what is out of your price range.

An added bonus of preapproval is that it makes you more desirable to sellers. When there are multiple offers on a home, a seller is more inclined to go with the buyers who have already been preapproved. Having already proved your creditworthiness makes you a lesser risk than someone who has not.