A pre-approved mortgage is one that provides an interest rate guarantee from a lender for a specified period of time (usually 60 to 90 days) and for a set amount of money. The pre-approval is calculated on the basis of information provided by the borrower and is subject to certain conditions being fulfilled before the mortgage if finalized. These conditions usually include factors such as a written confirmation of employment and income among other things. Many brokers prefer it when their clients have a pre-approved mortgage as this gives a clear idea of the affordable price range when hunting for a new home.
The benefits of getting a pre-approved mortgage are many. First of all, pre-approval gives you an idea of what you can afford, making your search for a new home much simpler. It also does away with the tension of trying to find out what your monthly installments are going to be. Probably the greatest advantage of getting a pre-approved loan is that it allows you to lock in a rate. As the lender guarantees a fixed rate when pre-approving the mortgage, the borrower can secure that same rate even when the market prices climb up. In case a situation arises where the interest rates fall below those that were pre-approved, the lenders usually offer the lower rate.