Getting a home loan can be difficult these days. So when shopping for a new home, it helps to get your mortgage preapproved before you start your search or make an offer to a seller.

A preapproved mortgage means that a lender has already reviewed your income, credit and assets to verify that you can qualify for the mortgage you're seeking. It shows a seller that you're serious about buying a home and can deliver on your purchase offer, which puts you in a better position to negotiate.

Getting a home loan preapproval means you've passed a higher level of lender scrutiny than someone who's simply been prequalified. The latter simply means the lender thinks you ought be able to qualify for a mortgage, based on your finances as you describe them. A mortgage preapproval means the lender has confirmed it.

Know what you can borrow

A preapproved mortgage offers a number of advantages for someone looking to buy a home. In particular, lets you know how much you can borrow, given your finances and credit, so you know what price range of homes you can qualify for. This simplifies the home shopping process by enabling you to target neighborhoods in your price range.

Getting preapproved also assures you that you will be able to obtain a mortgage when you find a home in that range, so you don't have to worry about wasting money on things like application fees and an appraisal, which can happen if you're turned down. It also allows you to compare loan packages from multiple lenders to see which one best suits your needs.

What you'll need

To get a mortgage preapproval, you'll need to submit the following to a potential lender:

-Your tax returns and W-2s for the past two years

-Pay stubs to prove you're currently employed

-Documentation of other types of income, including investments, child support or a second job

-Recent bank statements

-A letter authorizing the lender to obtain your current credit report, although the bank will likely have a standardized form for this.

A preapproval will outline the general terms of the loan you qualify for, but it won't lock you into an interest rate. Interest rates fluctuate daily, and since it can take several weeks or even months to find a suitable property, they can rise or fall significantly between the time you're preapproved and the time you're prepared to apply for the loan itself.

A preapproved mortgage doesn't commit you

One thing a home loan preapproval won't do is let you know exactly what mortgage interest rate you'll get. Rates fluctuate frequently, and you don't want to actually "lock in" a rate until your purchase offer has been accepted. The terms outlined in your preapproval letter will be based on the prevailing rates at the time you apply, but be aware those can change by the time you apply.

One thing to remember is that getting preapproved doesn't commit you to that lender. Once your purchase offer is accepted, you can still check around with other lenders to get the best deal you can find before committing.

Your preapproval letter has only a finite lifespan - they're typically good for only 60 to 90 days. You can typically get reapproved easily if you haven't found a home by then, but lenders will want to check to make sure your employment status or other key attributes haven't changed.

Published on January 28, 2010