The Benefits of Mortgage Pre-Approval

Getting a mortgage pre-approval is a wise decision to make early on in the process of buying investment property. It can certainly minimize the amount of time and potential hassel involved with purchasing investment real estate. A mortgage loan pre-approval lets you know the maximum mortgage amount that a lender will make for you.

Once you have a mortgage pre-approval letter, real estate agents are much more inclined to work with you as a buyer, and show properties in the specific price range of the maximum mortgage. In addition, sellers and listing agents will also take an offer more seriously if the mortgage loan for the rental property is already pre-approved.

Pre-qualified vs. Pre-approval

Many first time home purchasers and investors confuse being "pre-qualified" with "pre-approved." These two processes are actually quite different. Pre-qualification is basically an informal process, where the potential buyer gets an estimate from a lender of how much may be borrowed based on their cash down payment, income, and existing debt.

A pre-qualification notice from a lender may be either formal or informal, such as a personalized letter or an informal form letter. Such notice will also contain "disclaimers" that protect the lender in case the borrower ultimately fails to qualify after a formal loan application is made.

Because of this potential downside, some real estate agents feel that pre-qualification letters carry little weight, saying little more than a borrower has been in contact with a mortgage company. Before a lender will make the loan, a formal loan application will be required.

In contrast to pre-qualification letters, pre-approval letters carry far more weight. They tell the seller that the borrower has passed a credit and financial background check and has been given preliminary loan approval.

To obtain a mortgage pre-approval letter from a lender, a formal loan application must be completed. This application includes all the relevant documentation from the borrower, such as employment and income verification, tax returns, W-2 statements, etc.

After the application has been verified and the borrower's credit is checked to the satisfaction of the lender, the mortgage lender normally agrees in writing to make the loan. However, this loan will only be made after a satisfactory title search and property appraisal have been done.

The formal loan application process for buying rental property must be done eventually, so why not conduct the mortgage pre-approval process before looking for property? By doing so, you'll certainly avoid the disappointment, and embarrassment, of making offers outside your price range. You'll also get much more cooperation from agents and sellers. This is because they'll feel that their time is not being wasted by someone who is just "window shopping".

For more great information about mortgages and the entire landlord business, visit The Landlord's Library book collection. You'll have all the high value, in-depth information you need on the complete subject of landlording right at your fingertips.

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