What does it mean to Get Preapproved?
When you get preapproved, you submit a preliminary application to a lender. They review your credit, along with other items, and let you know what type of loan they’re willing to make. Getting preapproved helps you find out how much a lender will give you, at what rate, and what the terms look like. In this current market it important to be preapproved in order to put yourself in a position to be competitive.
You do not necessarily have to borrow money from the lender you’ve been preapproved with, you’re just getting information and bargaining power. If you get a better offer from another lender, you can take it. Likewise, the lender may not actually make a loan you’re preapproved for. If you and the lender have been thorough in the preapproval process, there shouldn’t be any problem.
When you work with a lender, you find out exactly how much they’d be willing to lend. They can run some numbers for you and help you figure out exactly how much you can borrow.
When you know how much you can borrow, you narrow down the possibilities so that you only shop for what you can actually afford. You’ll avoid falling in love with something that may be out of reach financially (and that may tempt you to stretch more than you should).
Being preapproved can also help you understand the costs involved in obtaining a loan.