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Mortgage Loan Preapproval and Why You Need It

During the home purchase process, few considerations are as important as your mortgage loan.  This loan will affect your lifestyle and your finances for many years to come.  If you don't work hard to find the mortgage lender that can best serve you and identify the right mortgage package to meet your needs and provide you with the lowest mortgage rates available, you may suffer the consequences of financial hardship.  A mortgage loan you can't handle may even cost you your home, obliterating any equity you may have tried to save.

This is why it's critical that you get into a mortgage loan that fits your needs and fits your income.  Your ability to earn money and your ability to continue earning money in the future dramatically affect whether or not you'll be financially healthy as a homeowner.  In order to ensure that your home purchase sets you up for success rather than failure, make sure you get preapproved for your mortgage loan early in the process.

What Preapproval Is

Mortgage preapproval is essentially an agreement made between your lender and you stating that you, the borrower, are eligible to receive a specific amount of money for the payment of a home in the near future.  Preapproval isn't based on the value of a home you're already considering purchasing.  In fact, preapproval is entirely unrelated to your real estate goals and plans.  It is based on a thorough analysis conducted by a loan officer that takes into account your credit score and how much you are interested in borrowing.

The lender that preapproves you will pull your credit report and analyze your overall financial situation before determining how much money you are qualified to borrow.  Once this has been determined, your lender will provide you with an official prequalification letter that certifies your position as a prequalified borrower.  This letter is actually an official document that guarantees you this money from your lender if all other elements of the loan fall into place properly.

Why You Need It

There are several reasons why mortgage preapproval is significant and necessary.  If you're a first time home buyer, it's your only bargaining chip when negotiating with home sellers.  A seller won't be interested in considering your offers if he or she thinks you may not be able to secure financing.  If, however, you are able to present the seller and the seller's agent with an official document guaranteeing you financing for a specified amount, you will be able to negotiate much more effectively.

Preapproval is also valuable in that it gets you started on the mortgage process early and ensures that you will in fact be able to secure the funding you need.  If you start by simply looking for a home that meets your needs without first ascertaining whether or not you can even get the financing for it, you may be wasting your time.

The most valuable aspect of preapproval, though, is that it keeps you within your own budget.  During the preapproval process, your lender is essentially telling you what size mortgage you can handle.  As this is one of the most important considerations you need to take into account when buying a home, you're setting yourself up to success by entering the home purchase process with this knowledge in mind.  Get preapproved before you start looking for homes.  It will make your home buying experience much better.

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