WHAT IS A MORTGAGE PRE-APPROVAL?

A mortgage preapproval is a process in which a lender assesses a potential borrower's creditworthiness to estimate how much the individual can borrow to buy a home. It's one of the first important steps in the home buying process.

During the preapproval process, the lender will look at various financial aspects of the borrower's situation, including:

1. Credit score and history: The lender will run a credit check to determine whether the borrower has a history of repaying their debts in a timely manner. A good credit score can increase the chances of getting preapproved for a mortgage.

2. Employment history and current income: The lender will verify the borrower's income and job stability, usually by looking at pay stubs, tax returns, and sometimes bank statements.

3. Debt-to-income ratio (DTI): This is the ratio of the borrower's total monthly debt payments to their gross monthly income. The lower the DTI, the better the chances of getting preapproved.

4. Assets and liabilities: The lender may also look at other financial assets and liabilities the borrower has. This could include savings, investments, and other debts.

After evaluating these factors, the lender will decide whether to preapprove the borrower for a mortgage, and for what amount. The preapproval letter, which is usually valid for 60-90 days, is a document that the borrower can use when making an offer on a house, demonstrating to the sellers that they have the financial backing to follow through on their offer. It's important to note that preapproval is not a guarantee of a loan, as the final loan approval will come after a more thorough examination of the borrower's financial status, as well as an appraisal of the property.