How important is it to get pre-approved for a home loan?

Everything You Need to Know

Getting pre-approved for a home loan is a crucial step in the homebuying process. It culminates in the issuance of a pre-approval letter, which can be your golden ticket to secure a home. Without it, your chances of successfully competing in a market with multiple offers are significantly diminished. In this article, we'll delve into the significance of home loan pre-approval and answer common questions regarding this process.

Why Should You Get Pre-Approved for a Home Loan? 6 Compelling Reasons:

1. Budget Clarity: Pre-approval helps you determine the price range of homes you can realistically afford.
2. Focused Search: It narrows down your home search, ensuring you look at properties within your budget.
3. Issue Identification: Pre-approval uncovers any potential financial obstacles before you commit to buying a home.
4. Competitive Edge: You stand out as a more serious and prepared buyer compared to those without pre-approval.
5. Seller Confidence: Pre-approval signals to sellers that you are working with a lender who has reviewed your financial history, increasing their confidence in your offer.
6. Streamlined Process: Much of the financial information required for the loan has already been collected during pre-approval, potentially expediting the closing process.

Understanding Mortgage Pre-Approval:

Mortgage pre-approval is the initial step in the mortgage process that qualifies you for a home loan. Essentially, it's a lender's commitment to lend you a specific amount for a home purchase (subject to final underwriting approval). This process results in a pre-approval letter, which you can present to sellers to reinforce your offer.

What Does a Mortgage Pre-Approval Letter Contain?

When you receive a mortgage pre-approval, the accompanying letter outlines the terms of the offer. It typically includes:

• The type of loan
• The maximum allowable purchase price
• Down payment percentage
• Any applicable lending fees
• The lender's tentatively agreed-upon interest rate

This letter accompanies your home purchase offer, reassuring sellers that you are approved for the financing required to buy the home at the offered price.

Is Pre-Qualification the Same as Pre-Approval?

In short, pre-qualification and pre-approval are not exactly the same. While some use these terms interchangeably, pre-approval carries more weight and reliability. To achieve pre-approval, a deeper dive into your finances is required. This process includes pulling credit reports, assessing credit scores, reviewing bank statements, investments, and other financial documents to calculate an approved loan estimate. It can uncover potential issues you may not be aware of, which is beneficial before attempting to secure a substantial loan.

Pre-qualification, on the other hand, relies more on self-reported information and does not involve a thorough examination of your credit report or financial documents. While it provides a preliminary estimate of how much you may borrow, it holds less value compared to a pre-approval letter, as the lender has not yet verified your financial information.

In the current competitive housing market, having a pre-approval letter is often crucial if you're a serious homebuyer.

When Should You Get Pre-Approved for a Mortgage?

It's advisable to get pre-approved before you begin looking at homes. By knowing your budget in advance, you can confidently make an offer when you find a property you like. The ability to submit a well-supported offer can significantly increase your chances of success in a competitive market. However, don't get pre-approved too far in advance, as most pre-approvals are valid for 90-120 days. Therefore, it's best to obtain pre-approval when you're genuinely ready to start house hunting.

What Documentation Is Needed for Mortgage Pre-Approval?

To start the pre-approval process, you'll need to work with a reputable lender. Our local mortgage specialists, who are NMLS licensed mortgage loan officers, offer reduced lending fees to save home buyers money on their purchases. They will guide you through the process and answer all your questions.

For mortgage pre-approval, you will typically be required to assemble and submit the following documentation:

• Personal Identifying Information
• Employment History
• Driver's License or State ID Card
• Social Security Number
• Type of Home Loan
• Length of Time to Repay the Loan (e.g., 30-year mortgage)
• Down Payment Percentage
• Tax Returns (usually the most recent federal and state returns)
• Bank Statements (the most recent two months for checking, savings, or money market accounts)
• Retirement or Investment Account Statements
• W-2 Forms for the most recent year
• Paystubs (the two most recent payroll statements for each job)
• Rental Property Income (if using it to qualify for a mortgage)
• Monthly Debt Payments (including student loans, car loans, and credit cards)
• Current Mortgage (if applicable)
• Rent Payment History (over the past 12 months and landlord contact information for the past two years)
• Divorce Documents (if applicable)
• Gift Letters for Down Payments (if applicable)

The Mortgage Pre-Approval Process:

The mortgage pre-approval process is a critical stage in securing your home loan. It involves the following steps:

1. Submit a mortgage application to your lender.
2. Compile and submit all required documentation.
3. Your lender conducts a thorough evaluation of the submitted documents.
4. Your lender provides you with a loan estimate.
5. Your lender furnishes you with a pre-approval letter.

How Long Does Mortgage Pre-Approval Take?

Typically, it takes 1-3 business days for a lender to determine a pre-approval loan estimate. The timeline often depends on how quickly you can gather and submit all necessary paperwork for evaluation. The process may take slightly longer if you're self-employed or have a history of foreclosure, bankruptcy, IRS liens, or poor credit. Remember, "pre-qualified" and "pre-approved" have distinct meanings. So, ensure your lender is genuinely conducting the pre-approval process.

How Long Does Mortgage Pre-Approval Last?

Most mortgage pre-approvals remain valid for 90-120 days, depending on the lender. If you require more time, your lender can usually extend the offer, but this may necessitate another credit report review.

Now that you understand the significance of getting pre-approved for a home loan, take the next step. Contact your mortgage lender or call me to refer  you a trusted lender. A mortgage specialists can guide you through the pre-approval process, provide you with a pre-approval letter, and prepare you to begin your house-hunting journey with confidence.

Betty Ortiz I Realtor