"Preapproval" means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a preapproval letter, which shows your borrowing power.
Although no final loan commitment, the preapproval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to sellers since they do not want to accept an offer that is likely to fail because financing cannot be obtained. How do you get preapproval?
A loan officer carefully reviews your financial situation, including your income, debt, property, credit report and other information. At this point you will usually discuss loan programs which most-closely meet your needs. For instance, a first-time buyer may qualify for state-backed mortgage programs with little money down and low interest rates, while a investor with a low LTV might want a loan amortized over 15-years to lower overall interest and costs. First-time buyers usually opt for the traditional 30-year loan, as payments are more affordable.
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