Pre-approval is the process by which a potential buyer searching for property applies for financing with a lender for a stated loan amount on property yet to be determined. The application is then underwritten by the lender (based upon credit, income, employment and assets of the applicant) and when approved is subject to an acceptable appraisal, purchase contract, preliminary title report and other substantiating documentation once a property is located.
There are typically no costs to an applicant to become pre-approved, although some lenders may request an applicant cover the cost of their credit report.
A preapproval is generally valid with a lender for a period of 60-90 days.
The potential buyer, as well as the buyer's agent, is provided with a written notice of pre-approval by the lender. This notice can then be included with a potential buyer's offer to purchase when provided to a seller. In the competitive real estate market we are experiencing, where multiple offers on a single property are commonplace, pre-approval has become mandatory for serious consideration of a potential buyer's offer.
Those in the market to buy, who require financing to do so, are severely handicapping themselves if they choose not to become preapproved by a lender.