Why Do I Need To Get A Mortgage Pre-Approval?
You might say, “I’ve been searching online, cruising neighborhoods looking for the “PERFECT” house and I can picture myself grilling steaks on a great new patio. I'm ready to MOVE!”
OK, just take a deep breath and let’s start at the beginning: in today’s market you MUST have one thing in hand before the fun begins, your pre-approval letter.
|Pre-qualified or Pre-approved?
One important thing you need to know is the difference between being pre-qualified and pre-approved.
Pre-qualifying merely means you’ve been preliminarily checked out by a lender. It is only a first step to find out how much you can borrow. With some basic information the lender will provide a rough estimate of what you might be able to get in the way of a mortgage. This is pretty much useless in making deal on a home, but it WILL let you know if you are possibly setting your sights too high, or if there is something maybe in your financial condition that needs work to get you the best long term financing. And, it doesn’t cost you anything.
The pre-approval process takes the preliminary loan process a step further, essentially the same as actually applying for a loan. Specific financial information is gathered, essentially the documents that will be required to complete the actual loan process, including tax returns, bank statements and employment verification. They will pull a complete credit report and get scores that are designed specifically for the mortgage business.
(Just a sidebar, the credit score you might get from your credit card folks or a consumer credit service will probably not be the same. Those scores are designed for general credit purposes and have a somewhat different focus.)With a pre-approval letter from your lender, real estate agents and sellers know you are a serious buyer. This letter will be provided with your offer on a property. It proves that you already have the ability to get a mortgage and make it through to closing, which makes your offer much more attractive to the sellers.
What documents will you need for a mortgage pre-approval?
If applicable, also provide:
Special circumstance requirements:
Note: Some lenders may require more or less documentation, some want data going back further; and in some cases alternative documentation may be acceptable.
|Mortgage pre-approvals aren’t a sure thing
The only thing the lender can’t pre-approve is the house you buy. A mortgage pre-approval letter puts you head and shoulders above other buyers who may be interested in the same home as you are — but it’s not a guarantee. The pre-approval process does not include a full-fledged underwriting review by the lender, so it’s not an absolute commitment to issue you a loan on whatever property you choose, though it is pretty close. There may even be conditions listed on the pre-approval that are contingent to receiving a loan.
While a pre-approval is proof that a lender is willing to make you loan, it is not an official commitment until you have a purchase contract in hand and complete the full application process. Other matters during the closing process can trip things up, including an appraisal of the home’s value and your ability to make a sufficient down payment. And of course, changes in the going interest rate or in your financial situation can change what you are able to afford up to the moment the lender’s actual commitment is made.
|When pre-approval isn’t necessary
There can be good reasons to skip loan pre-approval when house hunting. If you’re doing preliminary research on an area that is simply a potential new home base — checking out home prices, schools and lifestyle — it’s best to wait until you have a better idea of what you’re willing to spend, and where.
Also, delay pre-approval if you need to iron out some wrinkles in your credit history. Pulling your credit score and then determining what improvements can be made should be done before seeking pre-approval for a loan. You can identify that kind of issue with a pre-qualification review.
However, if you know your credit is solid and you’re on good financial footing, a pre-approval will give you the confidence and flexibility to do some serious house hunting. You’ll have more leverage when negotiating a price.
|What your mortgage pre-approval letter says
A typical pre-approval letter will say something like:
“This pre-approval is issued based on your current credit history, income, assets and debt — assuming that there are no changes in your financial situation. This pre-approval should not be considered a commitment to lend until the following conditions are met:
The letter will often state an approximate purchase price that you qualify for, and usually an expiration date, often within 90 days.
One other thing, some lenders will charge for a pre-approval letter, but most will not, hoping to get your business. Just don’t choose the lender because they don’t charge you.
|NOW can we shop?
OK, you’ve got the letter. NOW you’re really in the hunt, getting packed and ready to move to your new address. Some things to remember:
|Are you ready to start working on the process of moving to YOUR dream home?||
OK, maybe not this one.
|To request loan pre-approval, pre-qualification or to apply for a mortgage, we have a number of lenders we work with who are great at getting buyers CLOSED!|