Getting a mortgage pre-approval is a crucial first step in the home-buying process that can sometimes be overlooked. A mortgage pre-approval helps you understand how much house you can afford, makes you more attractive to sellers, and alerts you to problems that may affect your ability to get a loan.
Why should you get pre-approved for a mortgage?
When you decide to buy a home, you may be tempted to pull up listings and make appointments to see your favorite houses. However, taking the time to get pre-approved can give you an advantage over potential buyers who aren’t pre-approved.
You’ll get a better idea of how much you can borrow
There’s nothing worse than finding the home of your dreams, only to discover later that you can’t afford it. By going to the lender first, you’ll determine how much house you can buy before you start visiting homes beyond your price range.
You’ll be alerted to potential problems
Lenders will generally review your credit history, income, assets and debts before granting a preapproval. What they uncover can alert you to potential problems that may prevent you from obtaining a mortgage.
That may mean paying down debt to improve your debt-to-income ratio, saving for a larger down payment or resolving inaccuracies on your credit reports. Whatever it is, if you go through the preapproval process, you can take care of the issue before you begin your home search.
You can save time
While you’re searching for a home, the mortgage application process can be underway. However, many people make the mistake to start this process after spending months finding a home. This forces them to spend another three months waiting for their loan’s approval. Starting the loan process now will save you a lot of time.
A pre-approved mortgage can lead to a quicker settlement
With a pre-approval letter in hand, you can complete the purchase of a home in as little as 30 days, instead of the usual three months. Many sellers are in a hurry to sell and will accept a lower offer in exchange for a quicker settlement. If two people bid on the same house, the person with a pre-approved mortgage will win the contract.
How long is a pre-approval good for?
When you receive your pre-approval letter, it’ll probably say it’s good for 30 to 90 days. Since that’s a short period of time, you’ll probably want to wait to get pre-approval letters until you’re ready to start seriously shopping for a home. Also, a pre-approval is conditional. If you rack up more debt, change jobs, or reduce your savings, you could get denied when you go to get final mortgage approval.
How to get a mortgage pre-approval
Now that you have an idea of why it’s important to get pre-approved, here’s what you need to do to make it happen.
Gather the appropriate documents
Lenders will want to verify your identity, credit history, employment history, income, and financial assets to issue a pre-approval.
You may need to provide them with the following information:
- Bank accounts, retirement and other accounts
- Any other assets you have
- Property you own
- Income and employable details
- Employer contact information
- Debts you owe or other liabilities
Your lender will also likely do a hard credit inquiry, and may require additional documents based on your individual situation. An underwriter may examine it to determine how much you can borrow.