Understanding Loan Terms

Understanding Loan Terms

Mortgage Preapproval: What This Means and the Steps Involved

by Gregory Hall

Before you can shop for a house to buy, you must have a letter from a bank that states that you can get a loan. This letter is a preapproval letter, and you will need to go through a process to get it. Here is an explanation of what the mortgage preapproval process is, and the steps involved.

What Is a Mortgage Preapproval?

A mortgage preapproval tells you that a lender has reviewed your financial information and is willing to issue you a loan. If your finances and credit do not change by the time you need the loan, you should have no trouble getting it. The preapproval process bases the decision on your current finances and credit score. Once you get preapproved, you must make careful decisions with your credit and finances to avoid major changes.

Why Do You Need It?

The purpose of getting preapproved is to show that you are a qualified buyer. Your real estate agent will not want to begin showing you homes for sale without it. Real estate agents want the security of knowing that the buyers can get loans, so they will require getting preapproved before shopping for a home.

What Are the Steps of Getting Preapproved?

Getting preapproved can take some time, so you might want to begin this process a month or two before you want to begin shopping for a house. The first step involves gathering the information you need for the application. Next, you will need to choose a lender. The lender will ask you to fill out an application and submit documentation to prove several things. First, you must prove that you have a job. Next, you must prove the amount of income you earn from this job.

Your lender will also ask for financial details, including your bank account balances, loan amounts, and debts. Lenders review this information to determine if a person can repay a loan if they issue one.

Finally, your lender will ask you to consent to a credit check. A credit check is something that all lenders perform to determine a person's creditworthiness. Your credit score plays a significant role in the loan process, and it can hinder or help you get preapproved for a loan.

You can get preapproved for a mortgage loan by visiting a bank, financial institution, or mortgage broker. To learn more, contact a lender of your choice to begin the process.


About Me

Understanding Loan Terms

When I started my own company, I knew that I needed a little business capital and fast. In an effort to raise money, I worked with various lenders to discuss loans, financing, and special terms. Unfortunately, I quickly discovered that not every loan was created equally. Some loans had almost predatory terms like high interest rates and penalties, while others were completely fair. Fortunately, a business consultant of mine taught me about loans and financing, so that I could make better choices in the future. The information on this blog saved my business, and I know that it can help yours too.