Getting pre-approved by a lending institution

Why pre-approval?

As a buyer, it is good to know how expensive a house you can afford. You will save a great deal of time by narrowing your search. It might save you from severe disappointments if you found a home you love, put an offer for it, and spent money on home inspections only to discover later that no one will loan you enough money to buy the home. You will have also have a very upset seller to deal with. Many sellers do not accept an offer without pre-approval documentation.

When should you get pre-approved?

Right after you decide that you are going to buy a house. Don't wait till you find your dream house. The process of pre-approval can take a few days; meanwhile there may be other buyers making offers to that house. Remember the story of the foolish virgins from the Bible where the foolish ones who forgot to bring oil with their lamps were out buying oil when the bridgegroom arrived and got locked out of the wedding party? If there were realtors at the time of Jesus, the story could have been about the foolish buyers who went looking for pre-approval while the wise ones got their offers accepted.

Who gives pre-approval?

Any bank or lending insitution providing residential mortgage service. Getting pre-approval from a lender does not mean that you have to get the loan from them. Many institutions provide this service free of charge. But some big lenders have started charging upto $300.00 for pre-approval but will deduct the amount from the loan origination charges if you go back to them for the mortgage loan. You can always find smaller companies that charge nothing for this service.

What does pre-approval mean?

The statement by the financial institution states that they have examined your finances and credit worthiness. Accordingly they are willing to loan you x amount of dollars towards the purchase of the home. If the bank is willing to loan you $120,000 and if you have $30,000 in cash, you know you can afford to buy a house that costs $150,000. This is also very comforting to the seller to know that you are not only an interested buyer but also a viable buyer.