So you’re starting the house hunt – or at least entertaining the prospect – and you’ve heard step one is getting pre-approved. Today we’ll dive into what “pre-approval” means, why it’s important and the documents a lender will likely need to make it happen.
What is a pre-approval?
First of all, pre-approval is a mortgage amount that a lender is saying 1) he or she is confident you have the ability to make the necessary down payment of X amount and 2) you have an income that can sufficiently cover mortgage payments for the pre-approval amount. It’s not a commitment or a guarantee to loan you that amount of money. Why? Because it still has to go through underwriting once you have an accepted offer. It’s the lender saying: “I am 99% sure they can qualify just fine for this amount and I have gotten to this number by checking into their financials.”
What will the lender need from me?
What financials are they talking about? Well you’ll need to provide income information, such as: a couple months of pay stubs, tax returns and W-2s from the last two years, bonuses, child support, etc. The lender will also need to see your other assets like bank account statements or investments. And finally, he or she will need to check out your credit score. Those are the basics, but they may ask for other documents or information to get you pre-approved.
Why do I have to get pre-approved?
So why is it so important to get pre-approved? First of all, in a competitive seller’s market like we have today, offers aren’t getting the time of day if you don’t supply a pre-approval letter. It proves the ability to purchase the home from a financial standpoint AND that you have done due diligence of getting pre-approved – so you’re serious about this! Plus, do it for your own sake. There isn’t much worse than falling in love with a house, deciding to make an offer for $250,000, only to find out you can only get a loan for $240,000. You might know you have amazing credit or the ability to make a large down payment, but it is so important to take this step early and make sure all your ducks are in a row.
Can’t I just get pre-qualified?
There is also a huge difference between getting pre-qualified and getting pre-approved. A quick 10 minute call with a lender, telling him or her that you “make X amount of money, can put Y amount down and your yearly expenses are Z” can get you pre-qualified. But that doesn’t hold very much weight with sellers. It’s more for your own information. Getting pre-approved will prove to be worthwhile.
How long does the process take?
The whole process of getting pre-approved can take about a week or two – depending on how long it takes you to get the documents together. So if you’re considering buying a home, get the process started early! It’s free, there’s no harm in it and the pre-approval will last for about three months.
If you’re looking for a lender to get started with, let me know. I have a couple tried-and-trues whose contact information I can gladly send your way. I promise they’ll help you out and make the whole process pretty painless!