Pre-approved mortgage

Pre-approved mortgages are fairly popular with most conventional lending institutions such as banks, trust companies and credit unions. Pre-approved mortgages are a no-cost deal. Some lenders give qualifying applicants a letter of approval or wallet-sized certificate, just like a credit card, stating the maximum mortgage amount available and what the payments will be! Usually one condition is attached to the pre-approval -that the lender receive a satisfactory appraisal of the property once it is purchased. But even when borrowers are pre-approved for a mortgage, there's still no obligation to deal with that lender. There is nothing to stop borrowers pre-approved by one lender from booking their mortgage elsewhere if they can get a better deal.

When there is upward pressure on interest rates, a pre-approved mortgage preserves a previously committed, lower rate of interest. Unfortunately, pre-approved mortgages have very short rate-guarantee periods. Depending on the state of the market and the lender, it could be valid for anywhere from 30 to 90 days. To keep the rate, borrowers must complete their refinancing during that time or purchasers must find a house, sign a contract and close the purchase. Otherwise, the benefit of the committed rate is gone, and the borrower must reapply allover again. Therefore, when shopping for a pre-approved mortgage, ask the lender how long the rate is guaranteed. And if the commitment period runs from the date of the application, or the date of the approval -another important consideration when rates are on the rise.

Pre-approved mortgages are one of the most important and innovative features in mortgage financing. Yet despite their apparent attractiveness, to the surprise of many people, pre-approved mortgages can be dangerous. How? Because they are too convenient, and make life too easy and simple for most borrowers. Unless they are careful, borrowers could fall into an unexpected and costly trap with a pre-approved mortgage. Even with a pre-approved mortgage it's necessary for borrowers to look before they leap, and to shop before they sign.

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