Being pre-approved for a mortgage is when your lender, broker, or loan officer fully reviews your finances to confirm what amount you are able to be lent to purchase a home. At this point your credit history, credit score, debt to income ratio, employment status, employment history, and savings are reviewed thoroughly to determine this amount.
Generally speaking, the better your overall financial situation the more favorable the terms of the loan will be. The amount you are approved for is mostly based on your income and debt to income ratio while your rate is determined by your choice of loan, credit, and down payment. Your employment and work history are precaution measures used to determine the lenders risk of your own but generally don't affect terms. These are simply used on whether or not you have the ability to be approved at all. Keep in mind that even if you are pre-approved for a given amount, the home you are looking to purchase must appraise for at least that amount in order for the financing to be provided.
Once you are pre-approved your lender will provide you with an approval letter. This letter is a informal certification that provides confidence to sellers. They see that you are a serious buyer and having this saves time for both the parties should a purchase take place. This is definitely a useful tool when you are serious about purchasing a home.
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