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 helps 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.