Do I Have to Use the Lender if I Get Pre-Approved for a Mortgage?

When you're pre-approved for a mortgage, you often hear, You don't have to use that lender, but you need to decide who to use before closing. Let's break down this common question and explore the nuances of the pre-approval process.

What Does Pre-Approval Mean?

Pre-approval is a crucial step in the home buying process. It proves to sellers and real estate agents that you have the funds to purchase a home. The criteria for pre-approval are generally straightforward:

Are you breathing? Do you have a work history? Do you have a bank account?

These simple criteria are a sales technique designed to get you engaged in the home buying process. However, the actual pre-approval comes with a series of requirements that may seem more challenging:

Pay stubs Bank statements (for the past three months) Social Security number Signatures authorizing a credit check (credit score)

These documents are necessary for a thorough evaluation of your financial status and creditworthiness.

Why You Don't Have to Use the Lender

Just because you are pre-approved by a lender doesn't mean you must use them for your loan. Here are a few reasons why:

No obligation: While pre-approval is useful, it's not a binding agreement. You are free to shop around for the best rates and terms. Prepaid fees: Some pre-approval processes may involve prepaid fees. These fees are typically not refundable. Transaction risks: If you are under contract for property acquisition, your current appraisal might not be transferable. This can complicate the buying process.

It's essential to ensure that any new lender you choose is capable of completing the process, especially if you are already under contract. Always verify that your lender can handle the specific requirements of your purchase.

Can You Get a Loan Without Pre-Approval?

Technically, you can't get a loan without going through the lender's approval process. However, this process can be repeated with different lenders to find the best terms for your needs. Conducting multiple pre-approvals allows you to compare rates, fees, and terms from various lenders.

Is Pre-Approval Binding?

Pre-approval is rarely binding. A lender is not obligated to provide you with the specific amount pre-approved. They are only saying you are likely to be approved based on an initial investigation. This likelihood is not guaranteed, as the final approval depends on additional documentation and underwriting processes.

While many people stick with the lender that pre-approved them (due to inertia), they are always free to choose another lender. The decision is yours, and it's a smart move to shop around to see what other options are available.

What if Another Bank's Rates Are More Competitive?

If another bank offers more competitive rates or fees, you are not obligated to use the original lender. However, it's important to consider the potential risks:

If you change lenders, your terms (like the interest rate or down payment) might change, which could affect the transaction. The seller might have relied on the pre-approval from the original lender, so changing the terms could place you in a risky position.

Having said that, if you choose to go with a different lender or change your financial terms, this too is your decision. Just ensure you are fully aware of the implications and risks involved.

Conclusion

Pre-approval for a mortgage is a critical first step, but it does not lock you into a specific lender. You have the freedom to shop around and find the best terms for your needs. Understanding the pre-approval process and its limitations can help you make an informed decision during the home buying process.

Frequently Asked Questions

Q: Do I Have to Use the Original Lender?

No, you do not have to use the original lender. You are free to choose any lender that offers terms and rates that suit your needs best.

Q: Can I Get Pre-Approved by Multiple Lenders?

Yes, you can get pre-approved by multiple lenders. This allows you to compare different offers and find the best terms for your situation.

Q: What Are the Risks of Changing Lenders After Pre-Approval?

Changing lenders after pre-approval can potentially impact the terms of your agreement. It's essential to consider the risks, such as the possibility of altering the interest rate or down payment, which could affect the deal.