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Jun 01, 2021 | By Adebayo Adeagbo
Mortgage Pre-Approval - You Need It!

Mortgage Pre-Approval - You Need It!

Thinking of buying yourself a new house? Confused about the do's and don'ts of the mortgage pre-approval process?

This post is going to walk you through all the necessary steps of mortage pre-approval.

By the way, did you know getting yourself a pre-approval letter can provide you with a huge advantage in the home buying process?

So much that it has become a standard these days. It's a crucial step and should be one of the first actions to get done when buying a home.

A real estate agent won't work with you until you have a pre-approval and a seller won't even look at your offer until you have one.

What is mortgage pre-approval?

A pre-approval includes some of the same steps as a mortgage application.

In this process, you provide detailed information to your loan officer about your credit, debts, income, and assets.

The loan officer will run a credit check and then issue a pre-approval letter that you can provide to your real estate agent and sellers.

*Please note - A pre-approval can never be provided without a credit check! You can get pre-qualified without a credit check. More on this below.

The pre-approval letter is basically an acknowledgement from your loan officer that you're qualified to borrow up to a certain amount of money.

It shows sellers that you've already talked to a lender and are able to get a home loan. Everyone involved will have the peace of mind to know they aren't wasting time working with someone who can't afford the house.

When should you get a mortgage pre-approval?

Getting a pre-approval should be the first step in your home-buying journey. Before you start looking at houses, you need to know how much you can qualify for.

Having a loan officer review your credit, income, assets, 30-60 days before you are ready to start looking at homes is NOT too early.

Sellers will not accept your offer until you have a pre-approval letter and most of the time, real estate agents won't even show you properties without one.

Why should you get the pre-approval earlier rather than later.

If you decide to look at a home before getting pre-approved, and end up finding one you like, you won't be able to make an offer on the home until you have a pre-approval letter.

Since the process can take a few days, by the time you are ready to submit the offer, another buyer who has already gone through the pre-approval process can swoop in and win the offer.

Pre-approval vs Pre-qualification - What's the difference?

Pre-approval and pre-qualification are two different things and are easily confused with one another.

Pre-qualification is when loan officer is able to tell you how much you pre-qualify for after having a conversation of your finances. There is no credit check with a pre-qualification.

A pre-qualification is not enough for listing agents and sellers. They want to see a pre-approval.

On the other hand, a pre-approval is based on actual figures.

In this process you provide the loan officer with the documentation that is requested (typically consists of pay stubs, bank statements, tax returns, w2s). The paperwork is reviewed and a credit check is done.

You'll be provided with a certificate that states how much you are pre-approved for, which would be subject to receiving an acceptable appraisal.

What documents are needed for the pre-approval process?

The most commonly required documents are:

  • Last 30 days of paystubs or social security award letter / disability award letter
  • 2 months of bank statements
  • Last 2 years of w2s or 1099s
  • Drivers license or an ID card

The documents listed above are the basic docs needed for every file. There may be more requested depending on your situation.

Read on: Getting a mortgage when self-employed >>

 

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