When do I know if my mortgage loan will be approved?

Posted by  on Jan 16, 2013

Q: I'm looking to get into the housing market for the first time, but I'm not sure about how to find out whether I'd be approved for a mortgage. There seem to be various kinds of preliminary steps involved, but how do I know for sure whether I can get a loan?

A: There are three major stages to getting a mortgage. You actually only need to go through the final stage, but you may find that each of the first two stages, while they won't give you a definitive answer, could help you from wasting time as you go through the process of house-hunting.

The three stages of loan approval:

  • Prequalification. This is a fairly informal phase of the process. It is strictly based on the numbers -- you give some basic information about your financial situation, and find out how big a loan you could get. Mortgage lenders should be willing to do this for free, and you can also find online tools that will do a rudimentary calculation along these lines. By prequalifying you, mortgage lenders are not committing to approving your loan because they haven't verified your information yet, but it is still helpful information.

  • Preapproval. Once you get serious about house-hunting, preapproval is the stage where the mortgage lender verifies information such as your employment, income, credit history, liabilities, and bank holdings. If you pass muster with the lender, they usually give a commitment for a mortgage loan up to a specified size, contingent upon their approval of the property and good for a limited period of time.

  • Final approval. Assuming you have been preapproved, then final approval is all about the house. Mortgage lenders need to verify that properties acting as collateral for their loans are worth at least as much as what they are lending.

Following this process step by step can help you understand what you can afford, help you discover any potential barriers to getting a loan, and help you be ready to act when you find the property you want.


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