First off…what does the term “pre-approval” mean?
Pre-approval means that the lender is confident that you can make the necessary down payment and that your income is sufficient to cover the mortgage payments. At this stage, only one concern remains. The lender needs to make certain that the property’s value offers sufficient collateral in relation to the loan amount. In other words, the home must be appraised for an amount more than, or equal to, the purchase price.
Why is it important to get pre-approved?
When you’re ready to make a purchase offer, both your real estate agent and the seller will most likely want to see a pre-approval letter. This proves that you’re likely to be able to make the purchase and, therefore, you can be taken seriously. In a competitive housing market, sellers prefer a pre-approved buyer to those who, for all anyone knows, might be unable to close the deal.
How do I get pre-approved?
Before you roll up your sleeves and start house hunting; understand what should happen BEFORE you set out on the home buying adventure. Getting pre-qualified can be the key in making a desirable offer on your dream home. That can be paramount; especially if you are in competition with others interested in the same home.
You will begin with an “interview” by a mortgage professional about your income and expenses. This can happen in person or even online. This gives you a general idea of the price range you can afford. A great mortgage professional will then send your file through underwriting for an official pre approval. They will take a closer look at your credit report, your employment history and your income. That will determined which loan programs you qualify for, the maximum amount that you can borrow, and the interest rates you will be offered. You will need to provide your last two years’ tax returns and W-2s, your most recent pay stubs, bank account statements, and a signed authorization to order your credit report. Some loan products require additional documentation. Your mortgage professional will guide you on what is needed in that case. An underwriter will then list any conditions that need to be met for full approval.
You will basically be going through the full underwriting process without the address of a new house. Once you find that home, you will be fully prepared to make an offer that is backed by full underwriting.
If you have any questions about the process before you begin, we are more than happy to help. You can contact us by clicking here.