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Definition / Meaning of

Preapproval

Categories: Finance,

When you're preapproved for a mortgage, the lender guarantees in advance the maximum you can borrow, provided your financial situation doesn't change before you find a home. You'll need to fill out a mortgage application with the lender to be preapproved, as well as provide verification of a regular source of income and authorize a credit check. Then the lender provides a letter confirming how much you'll be able to borrow. The preapproval process usually takes a week or two, but it may take only a few minutes if you apply for a mortgage online. Some, but not all, lenders charge a fee for preapproval.Preapproval is not a binding commitment for either the buyer or lender, but it can give you a competitive advantage. You know in advance how much you can afford, and sellers are confident your mortgage application won't be turned down. Plus, it can speed the process of closing the sale. If you're a first-time homebuyer or you're self-employed, it may be a good idea to consider getting preapproved.