I have been Pre-Approved — What Does this Mean?

You did it – you applied for a mortgage and you got pre-approved. Congratulations. So what’s the next step?

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You are ready to buy a house! Getting pre-approved is the precursor to final approval. What the lender is telling you is that you are approved but have certain conditions you must satisfy before the lender can give you final approval. One of the largest factors is likely a property address to tie to the mortgage. If you are like most borrowers, you sought a pre-approval before you even shopped for a home. Now it’s time to find a home and get that final approval.

There’s No Obligation

First, you should know, that you aren’t under any obligation to buy a home even if you have a pre-approval. All it means is that the lender evaluated your credit report and supporting documentation to determine if they would be willing to lend you money should you want to buy a home. If you decide you aren’t ready, that is totally fine. Just know that a pre-approval is usually only good for a maximum of 90 days. After that point, you would have to apply all over again.

You Know What you Can Afford

One of the largest perks of getting pre-approved is that you know how much loan you can get. This helps you narrow down your search for a home, which is why we recommend getting pre-approved before buying a home.

This way when you shop for a home, you’ll shop within the realm of possibilities rather than falling in love with a home only to find out that you can’t afford it. Think of it this way, having a pre-approval helps you remain realistic about what you can afford. It can also help you avoid heartache when you realize the home of your dreams is slipping through your fingertips.

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You Can Have Fewer Contingencies

Sellers like offers that have few contingencies, if any. They would prefer a cash buyer in a perfect world, but a pre-approved buyer is the next best thing. In fact, many sellers won’t even entertain an offer from a buyer that isn’t pre-approved. Not having that piece of a paper from a lender stating that you can secure financing doesn’t give the seller any reassurance that you are even serious about buying the home.

When you have the pre-approval, you may be able to avoid the financing contingency that many sellers dread. You already know you can get financing. If you are buying a home that is safe, stable, and sanitary, chances are it will pass the lender’s approval too. If you want to protect yourself, you can add an appraisal contingency so that you are protected should the home not appraise, but you can eliminate the financing contingency from your offer.

You are Ready to Move Forward

What the pre-approval really means is you are free to go and make an offer on a home and hopefully buy it. The lender will tell you what conditions exist aside from any that have to do with the property. For example, maybe they want to re-verify your income or verify your assets when you get closer to the closing. These are just like ‘double checks’ on something the lender already verified.

As long as your ducks are in a row and you didn’t change much after you applied for the loan, you should be in good standing to close on your loan and buy your dream home. The pre-approval is an important first step in buying your home.

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