So, you’ve found a realtor and you want to search for your forever home, but the realtor asks for your pre-approval? First, what is a pre-approval, you ask? A mortgage pre-approval isn’t
Why A Pre-Approval?
Dated: May 31 2022
So, you’ve found a realtor and you want to search for your forever home, but the realtor asks for your pre-approval? First, what is a pre-approval, you ask? A mortgage pre-approval isn’t a promise that you’ll get a loan for the home you want to buy. A mortgage pre-approval only means a loan officer has looked at your finances—your income, debt, assets, and credit history—and determined how much money you can borrow, how much you could pay per month, and what your interest rate will be. In other words, it’s a quick way to see how much a lender is willing to extend you when you’re ready to start house hunting, and it’s recommended that you are pre-approved prior to searching for houses, as most sellers will not accept offers without a pre-approval letter attached. Once your mortgage pre-approval goes through, your interest rate is locked in for 90-130 days. If interest rates go up during that time, you still get the promised rate. However, if rates fall, you can see if you can get a better mortgage rate when you’re ready to close. There have been instances where the rate has dropped by the closing date, and the lower rate was extended.
How does one go about getting pre-approved? Getting pre-approved is free, so shopping around is encouraged. Once you’ve chosen a lender, they will do a hard credit check to assess your finances, so you want to ensure that your credit score is in good standing. Multiple credit inquiries from a variety of lenders within a short period, typically 14 to 45 days, will appear as only one hard check on your credit file, so the impact on your credit score is minimal. Its ok to seek out various lenders to see how much you will be approved for and what interest rates they are offering. You can also seek the services of a mortgage broker, who will shop around on your behalf. The mortgage broker is paid by the lender, so no cost to you.
Regardless of which lender you choose, you’ll need to provide them with some information. Your social security number will be used to pull your credit score. Make sure your credit is up to the task. Pull your credit reports in advance, leaving enough time to correct any errors or issues you might find there. You typically need confirmation of your income through pay stubs, tax returns, W-2 forms, and Forms 1099, if applicable. Some lenders ask for bank statements as well, and you might have to confirm your identity by providing a driver's license or other ID.
You may be able to increase your odds for a successful pre-approval by increasing your income by applying for the loan with a working spouse or consider a co-signer. Making a larger down payment, reduces the amount you will need to borrow, lowering the monthly payment. You can also apply for a longer-term loan but be beware of interest costs and the possibility of getting upside down. Work on building or improving your credit so you're more attractive as a borrower. Paying down your loan balances is one strategy to accomplish this. Maintain your debt-to-income ratios. You don't want to upset the cart by immediately taking on more debt after a preapproval. Your credit information should remain the same from the time of your preapproval to the time you take out the loan. Remember, preapproval is not a guarantee. It can be pulled at the last minute if something changes.
In a word, "very." Lenders base their decisions, at least in part, on your credit history. The better your track record as a responsible borrower, the more likely you are to be approved. Once you’re pre-approved, the lender will email you and your realtor the pre-approval letter. This letter will include how much you have been approved and allows you to search for a house within that range. The pre-approval letter will be attached to any offers that you want to submit to the seller. Keep in mind most realtors will not schedule showings of properties without a pre-approval letter because the sellers will not accept any offers without it. You can always reach out to a realtor with further questions.
Hi, I'm DANA LEWIS and I'd love to assist you. Whether you're in the research phase at the beginning of your real estate search or you know exactly what you're looking for, you'll benefit from having ....
Latest Blog Posts
These are murky waters for someone wanting to purchase their first home or to purchase a home for living purposes. On average, potential homeowners are submitting offers for at least 4 properties or