What is a Mortgage Pre-approval?
A mortgage pre-approval is a process in which a lender evaluates a potential borrower’s creditworthiness and confirms their ability to borrow a specific amount of money for a mortgage loan.
This process typically includes a credit check, income verification, and an analysis of the borrower’s debt-to-income ratio. A pre-approval letter is issued to the borrower, which states the amount they are approved to borrow and the terms of the loan.
Why is this term important?
Mortgage pre-approvals are important because they give buyers a clear understanding of their home-buying budget and help them become familiar with the different types of mortgage products available to them.
Having a pre-approval letter can also make a buyer’s offer more attractive to a seller, as it shows that they are qualified and serious about their offer.
Here is an example:
When a homebuyer receives a mortgage pre-approval it will specify the pre-approved term, interest rate, mortgage principal, mortgage type, amortization period, monthly payment, and any other terms and conditions.