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What Is Pre-Approval?

Learn what pre-approval means in this Howcast finance video with expert Gregory McGraime.


Pre-approval is really when your going into a lender for a loan and your getting pre-approved for that loan in advance. And the way you do that is your filling out a application and your submitting your financial data to the lends and their running your credit. And they're approving your ability to borrow a certain amount. And where you see this the most is with people that are shopping for a home or an apartment. And someone might say get pre-approved in advance. So what do I do, I go into my lender and say I want to buy a house that's up to three hundred thousand dollars in cash value and this is the type of mortgage I want. And the lender collects all your financial documented, they run your credit report, they review your income and they give you a piece of paper that says yes we will loan you money for any property you find up to a certain value. That's what pre-approval is. Your getting that advanced notice that you will get the loan. Why that's so important is, if your negotiating for properties it gives you some bargaining powers. Because now the seller does not have to take the risk on whether or not this person is going to get the loan or not. What it also does is help shorten the closing time. Because the under-riding or a good part of the under-riding has already been done. You can now close on a property much quicker. Now pre-approval should not be confused with whats called pre-qualification. And i see thi all the time. Someone calls a bank and says they want to get pre-approved. And within thirty seconds they have a letter that says yes we'll loan you money up to a certain amount. But it's not worth the paper it's written on. Because they haven't actually seen your income statements. They dont know what your credit score is. They haven't got your bank statements, your assets and things of that nature. So everybody that's shopping for a loan, you want to make sure you get pre-approved in advance so that there's no surprises at the last minute and so that you can do things in a way that makes the most amount of since. If your selling a property out there and someones offering you money, ask them let me see your pre-approval letter. Are you per-approved. Because the last thing you want to do is take your house off the market and think you have a deal and get into this whole battle negotiating. Only to find out later that the person wasn't able to get a mortgage. If your shopping for a home and you wanna get pre-approved make sure you do the real deal and submit all your financial documents, so that there's no question later on whether or not you'll be approved.

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