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A preapproval is your lender's written agreement to finance your home purchase up to a specific amount, subject to certain conditions. Getting preapproved can be a good move for serious homebuyers because it shows sellers that you come to the negotiating table ready to complete the transaction.
Preapproval vs. Prequalification
A preapproval indicates that a lender has taken a detailed look into your financial background and has issued a conditional loan approval, pending specific property details. Because preapproval includes a credit check, it's more powerful than a prequalification letter, which generally only estimates what you can borrow based on information you provided.
Who can benefit from preapproval?
A preapproval can be a great advantage for anyone buying a home. It can be especially useful for buyers looking for their first home and those who are self-employed or work on commission.
- First-time homebuyers. Without a record of previous mortgage payments, sellers may see first-time homebuyers as less likely to obtain financing than a similar buyer who has already demonstrated the ability to meet a monthly mortgage payment. A preapproval helps by showing the seller that a lender has already run the numbers and is willing to proceed with the transaction.
- Self-employed buyers or commissioned employees. Because their incomes may fluctuate more dramatically, self-employed and commissioned buyers often lack the financial documentation of salaried employees, which can send up a red flag to some sellers. Showing that a lender has already considered these factors will help eliminate this risk.
What are the advantages of being preapproved?
Preapproval offers a number of advantages over waiting to apply for a mortgage until after you've found a home. It lets you:
- Shop for a home with the confidence of knowing how much you can borrow.
- Find out about possible qualification problems early in the home-buying process.
- Take advantage of the preference many home sellers have for preapproved buyers.
How does the process work?
Before you begin shopping for a home, submit your financial information to Dominion Home Mortgage. We'll review your data and then, if you meet qualification requirements, we'll provide you with a written preapproval for up to a specified mortgage amount, subject to certain conditions. It is important to note that a preapproval is not a commitment to lend. A loan commitment is contingent upon verification of application information, satisfying all underwriting requirements and conditions, and providing an acceptable property, appraisal, and title report.
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