If you contact a mortgage lender about getting a loan for a new house, they may have you submit an application, including making financial disclosures. You will then get a preapproval letter.
One important thing to note is that this preapproval is starkly different than final approval for the loan. It does not mean you have already been given that loan or that you have access to the funds. So what is the goal of a preapproval?
Establishing your financial position
The preapproval letter helps because it demonstrates that the lender thinks you will likely qualify for a loan in a certain range based upon their preliminary examination of your finances. This can give you an idea of roughly what you are able to afford. That can be very helpful as you look at the local market and try to decide what homes you would even want to make an offer on.
Once you do make that offer, having a preapproval letter can strengthen your position. It shows the seller that you are likely to get the loan, which vastly reduces the risk that you will be denied and derail the transaction process.
That being said, while you may make an offer with your preapproval letter, you will need final approval before closing on the home. This is when the specific dollar amount of your mortgage loan is approved, depending on the purchase price that you have negotiated with the seller. It should be roughly in line with your preapproval range, but it will give you a more definitive answer regarding your financial obligations.
If you are a first-time homebuyer, navigating these steps can feel complex, which is why it often helps to work with an experienced attorney.