Receiving a lender pre-approval prior to making an offer on a property can be a good idea when purchasing a home. Oftentimes, real estate agents ask for or require a pre-approval prior to showing homes to potential buyers.
You'll have a better understanding of your preliminary financing options, as well as your price thresholds when it comes to shopping around. In a competitive market, sellers are also more likely to consider serious offers from buyers who have a pre-approval, due to there being a higher likelihood that the transaction will close.
Sellers may also be more willing to accept a buyer's offer when they know that a lender has already reviewed certain credit and possibly qualifying loan documents. Lenders will usually provide a pre-approval notification in writing, which can be presented when submitting a purchase offer.
The difference between pre-qualification and pre-approval?
A pre-qualification is a starting point in your search for mortgage financing. A snapshot of your financial situation is taken, which includes a look at your current income, debt, savings, and employment and residential history. All of these factors will then be analyzed to determine your loan eligibility.
A pre-approval occurs when a loan application is submitted. Based on your income, debt ratio and savings, the underwriter provides a pre-approval on an approximate loan amount you are eligible to borrow, and may also list additional documents as a condition for full loan approval.