Pre-Approval is the initial assessment of a borrower's creditworthiness ascertained by the lender. Before looking for houses to purchase, one must have an idea as to how much loan he could possibly take. It is a very easy process and could be done via phone, fax, and overnight delivery or on the net. It involves no cost.
The Process:
- It begins with pre-qualification.
- Followed by signing of mortgage loans application and loan disclosure documents. That is , before you choose the house, you apply for loans
- The lender's loan officers contact you. They must be furnished with the following documents- pay stubs, bank statements, credit history and job details. They even ascertain the future prospects of the borrower.
- On the basis of the financial statements, your loan is processed and sent to the underwriters for approval. After this, you get a firm loan commitment from the lender. You get the estimate of the maximum loan you can afford.
- Then you can start searching for your new home .An appraisal of the property you choose is done and then the loan is ready to close.
Who are the people benefited by Pre-Approval?
- The Borrower
- The Agent [of borrower]
- The Seller [of home]
- The Lender
The Borrower's Benefits
- It gives you a clear idea as to how much loan you possibly afford.
- It directs you to make the best affordable choice of a home.
- It helps you assess your financial status in the loan market as well.
- Through this process, you become a qualified borrower. It is an implication
that you are seriously interested.
- It would give you a 'one up' status in the negotiations with the seller
as your credit-worthiness is ascertained and documented.
- It gets all the people involved on the alert, as they feel you are going
to buy a deal.
- The best part is you could walk out of a deal and yet get to know more in
the process.
The Agent's Benefits
- The agent has a clear idea of your financial background
- This would help him look for a house which fits into your budget rather
than groping in the dark.
For eg. If you express your whim of acquiring a 1000sq. feet house of $125,000
and your qualification is only $100,000, then your agent will look for houses
in the range and it would save on effort as well.
The Seller's Benefits
- The seller would be more interested in a person whose financial parameters
are known.
For eg. If he gets two offers and one is pre-approved. He would show more
interest in this offer. The risk factor is less.
The Lender's Benefits
- The loan-officers of the lender's contact the banks to verify your earnings,
assets and review your credit history. This gives them a clear picture about
the borrower.
- This could decide whether to proceed with the dealings or not.
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