Mortgage preapproval means that a lender has guaranteed to give you a home loan after clarifying your credit history, your income level and other financial information. It is a commitment from a lender to provide you with home worth of a certain loan amount.
The buyer with mortgage preapproval stands out from the sea of other home buyers. Sellers prefer to choose you because you are a sure thing, and they do not have to take the risk of loss.
When you are given a mortgage preapproval, it means a lender has stated how much you can borrow and how much interest rate you qualify for. You can get this information statement from a mortgage lender, like a bank or other financial institution. Sometimes, you can do the calculation on how much you can borrow through the online calculators. But these programs are not authoritative, and for most home buyers, what they end up qualifying for is often less than the amount provided by the calculator.
Is it important to get a mortgage preapproval? Of course. If you get pre-approved, you can figure out what your price range for home is and then you can do a more accurate home search instead of wasting your time and cost. And this information statement can also give sellers and real estate agents confidence that you are a credible buyer and are able to afford their products. Compared with other buyers, sellers may take you more seriously.
Mortgage preapproval should not be confused with mortgage prequalification. Prequalification is more like a verbal guarantee. You tell your lender about your financial situation, and they just tell you how much you can theoretically borrow without a guarantee. However, if your lenders give you a mortgage preapproval, it means that they have done enough research and are willing to lend you money. Therefore, preapproval is more persuasive than prequalification in the process of home buying.