Understanding a Mortgage Pre-Approval
When it comes to purchasing a home, a mortgage pre-approval is often the first step in your process. It is nearly impossible to begin your home search without understanding the amount of money you qualify for. No matter the type of loan you decide to use, from VA to conventional or FHA, all mortgage lenders can (and should!) provide you with a pre-approval to use as the basis in your home purchase search. With this in hand, you can confidently work with a realtor to scope out and secure the home of your dreams.
A mortgage pre-approval dictates your purchasing power.
In short, a mortgage pre-approval is an official letter that you receive from a lender that advises the max amount of money you can borrow for the purchase of a home. It shows realtors and sellers that you have been vetted and are pre-approved for a home loan. This provides security for all parties involved. Most lenders use the terms, “preapproval” and “prequalification” interchangeably when it comes to a borrower’s purchasing power, but there may be a slight difference that you want to look into. Typically, pre-approvals require a more in-depth review of a borrower’s credit history and financial health. With prequalifications, some lenders don’t require a full credit review prior to providing you with their prequalification letter. It is best practice to stick to one that reviews your financial health to set you up for the best home purchase success once you decide on a home to put an offer in on.
Mortgage pre-approvals require personal information.
In order for lenders to make a reasonable decision on your pre-approval request, personal information must be provided and reviewed securely by your lending institution.
Some of the most standard and requested information includes:
- Credit history
- Proof of income
- W2’s for the last two to three years
- Pay stubs
- A copy of your identification (license or state ID card)
- Bank statements
- Social security card
- Asset list
- Debts to determine your debt to income ratio
Pre-approvals are not indefinite in their timeframe.
Although pre-approvals are the best way to secure your stance in the real estate market as a buyer, they don’t last forever. Going into the purchasing process knowing what you want in a home is important to beginning the search, even prior to your pre-approval receipt. Once you decide on purchasing a home sit down and make a checklist of what you need prior to seeking outside assistance from a lender and realtor. Include a pre-approval on your list of must-haves along with your dream home needs. Remember that it’s also important to have all documentation ready to go prior to meeting with your lender. This keeps things moving and keeps everyone involved more organized. As you search for your home, be concise in your decisions while keeping your pre-approval letter in mind. Typically, pre-approval letters are good for 60 to 90 days from issuance, but it varies by state. Check with your lender to ensure the exact timeframe on your pre-approval and request what additional steps need to be taken if you go past that timeframe without securing a home.
There are many factors to consider when deciding to purchase a home. Whether it’s your first home or your tenth, a mortgage pre-approval is key to your leverage and security in the purchasing process. If you think now is the time for you to buy the home of your dreams, let’s work together and start your pre-approval process and home buying checklist today.
