• Preapproved? What does it mean?

    February 5, 2020
  • What does it mean to be preapproved for a mortgage?

    It actually doesn’t mean a whole lot. It depends a lot on the person who has preapproved you for a mortgage.

    Sometimes you will see advertisements that boast preapprovals in 30 seconds. There are a couple of problems with this approach.

    These types of pre-approval processes take your word for a lot of the details. You tell the app or program or even person, that you have good credit, that you and your spouse make $100K/year and you have 5% down.

    Problem 1: your credit may not be as good as you think. You may have hidden problems like a balance on a credit card you weren’t aware of or a collection you weren’t aware of or not enough activity or number of trades or history. To be properly pre-approved, you should have an expert analyze your credit bureau.

    Problem 2: your income may not qualify. You may be on probation or on contract or part time on a new job with not enough history. You may be self-employed and don’t declare the income “properly”. Your employment should be reviewed very carefully by a professional before pre-approving you.

    Problem 3: you may have 5% down but you’ve borrowed it from another source or you have 5% down but not all of it can be used towards the down payment because you need to use some of it for closing costs.

    Problem 4: what type of home are you buying? Some homes like condos have a condo fee that could prevent you from affording it or property taxes that are high.

    A preapproval is a fancy way of saying that “the bank might give you the money you need but they need to check everything first and will let you know”. If the preapprover doesn’t ask you at least for the above information, the preapproval is meaningless.

    Always go conditional on financing. Get a professional to review you entire file before trusting a preapproval.

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