preapproval

Preapproval

A commitment by a mortgage lender to provide a loan with a certain monthly payment to a borrower. A lender offers pre-approvals in hopes that the borrower to whom it is offered will use that lender in securing a mortgage. It should be noted that, while the monthly payment is fixed, the interest rate and therefore the total amount available to be borrowed are not. This can limit the potential borrower's options as he/she seeks to buy real estate.

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Preapproval. When you're preapproved for a mortgage, the lender guarantees in advance the maximum you can borrow, provided your financial situation doesn't change before you find a home.

You'll need to fill out a mortgage application with the lender to be pre-approved, as well as provide verification of a regular source of income and authorize a credit check. Then the lender provides a letter confirming how much you'll be able to borrow.

The preapproval process usually takes a week or two, but it may take only a few minutes if you apply for a mortgage online. Some, but not all, lenders charge a fee for preapproval.

Preapproval is not a binding commitment for either the buyer or lender, but it can give you a competitive advantage. You know in advance how much you can afford, and sellers are confident your mortgage application won't be turned down. Plus it can speed the process of closing the sale.

If you're a first-time homebuyer or you're self-employed, it may be a good idea to consider getting preapproved.

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preapproval

The practice of obtaining lender approval for a mortgage loan up to a certain specified amount and then shopping for an appropriate property.