Want To Move Into Your Dream Home Faster? Get Your Mortgage Pre-approval Now!

Do you want to become a smart home buyer who can make informed offers and decisions? Your affirmative will certainly pose the next question: how? Well, the answer entails many factors, one of which is knowing your affordability.

You can get an understanding of your financial situation and figure out how much you can actually borrow by going through the process of mortgage pre-approval. It is an important step anyway when you are applying for a mortgage. If you get pre-approval, your chances of attaining a home loan become higher.

Hop on for a thorough discussion of everything you need to know about mortgage pre-approval.

Understanding Mortgage Pre-Approval

The term 'mortgage pre-approval' refers to your verified affordability of a home loan. A lender will review your financial information and assess whether you're eligible for a mortgage and how much you can borrow. Think of it as a sort of 'pre-screening' before you actually apply for a mortgage.

If the assessor deems you fit for a mortgage after evaluating your income, assets, debts, and credit score, you will get a pre-approval letter. Now, here's something you should keep in mind: pre-approvals usually last for 60 to 90 days, depending on the lender. So, if you find the perfect home during that period, you can use your pre-approval letter to show the seller and the agent that you're a serious buyer who has already been approved for a mortgage up to a certain amount.

But remember that pre-approval is not a guarantee that you'll get the loan, and you could still get denied for a mortgage even after being pre-approved.

What sets Pre-Approval, Pre-Qualification, and Approval apart?

Pre-qualification, pre-approval, and approval are terms often used interchangeably. However, there are slight differences between these jargon. Understanding these differences can make the overwhelming home loan application process smoother.

• Pre-Approval & Pre-Qualification
  
  These two terms are often considered the same, but they are not. Pre-qualification is where a lender takes a quick glance at your financial situation and gives you a rough estimate of how much you might be able to borrow. Prequalification does not require a hard credit inquiry. However, the estimates may lack accuracy and there is no guarantee that the amount you're pre-qualified for is the amount you'll actually be able to borrow.
  
  This is where pre-approval comes in. Your lender would conduct an in-depth analysis of your financial documents, credit score, and other important factors to determine whether you're eligible for a mortgage and how much you can borrow. However, such hard credit pulls may impact your credit score.


• Pre-approval & Approval
  
  Is the “pre” in pre-approval making you wonder whether you’ll need to get another approval letter? The answer is yes! Getting pre-approved is like getting a sneak peek into the mortgage process. However, after finding your perfect home and submitting an offer, the real effort begins.
  
  After receiving a pre-approval for a mortgage, you'll still need to complete the final approval process. The lender would verify your information and conduct a detailed assessment of your property.


• Home Appraisal
  
  The lender confirms whether the value of the property is in line with the price you're paying and the amount you are borrowing. If the appraisal value comes back lower than the purchase price, it could create some hurdles for your loan approval.


• Title of the Property
  
  Your lender will want to review the transaction and work with a title company to make sure that the person selling the home actually owns it and that there aren't any outstanding claims or liens against the property.


• Condition of the Home
  
  The standards that the property needs to meet before the loan can close depend on the type of loan you're applying for. For example, if you're applying for an FHA loan, the property will need to meet certain standards. Your lender will want to ensure that there are no major issues with the home, such as a damaged roof, that could pose a safety risk.

• Accurate Budgeting
  
  Obtaining a mortgage pre-approval not only helps you determine your financial standing but also gives you a better idea of how much you can afford to borrow and what type of home you can realistically purchase. It lets you avoid the frustration of touring homes that are beyond your means.


• Better Services
  
  Often, a pre-approval letter is a prerequisite for the agents, without which they are not ready to serve you or show you houses.


• Stronger Negotiating Power
  
  Show your seller your seriousness as a buyer by boasting about your pre-approval letter! It indicates that you have already taken steps to secure financing, which gives you an edge in a hot real estate market where multiple buyers are competing for the same property.


• Faster Closing Times
  
  Since you've gone through a big chunk of the process, the lender has already verified your financial information and credit history. This means that when you find the right home, the closing process can move more quickly.

• Credit Score
  
  The hard credit pull associated with a pre-approval may affect your credit score but not tremendously. Even if you seek pre-approvals from various lenders within a time frame of 45 days, your credit score will not experience a decrease. This is because credit scoring models recognize that you're shopping for a mortgage and allow for a window of time where multiple inquiries are counted as one. So, strategizing and keeping a check on your credit score will take you to great lengths.


• Time of Getting Pre-Approved
  
  Timing is everything when it comes to getting pre-approved for a mortgage. Wondering what it is? Well, it is the time when you decide to purchase a home and begin the exciting journey of the home-buying process.


• Financial Documents
  
  Your lender will need appropriate documents that will verify your income, assets, and debts. You'll need to provide W-2 statements, tax returns, pay stubs, bank statements, debt-to-income (DTI) ratio, driver’s license, Social Security number, and evidence of assets, like stocks and real estate, and income, and employment evidence. Your credit history will also be assessed, so make sure you have information about your credit cards, loans, and other debts ready.


• Debt-To-Income Ratio (DTI)
  
  Your DTI is an important factor in determining your eligibility for a mortgage. You can compute it by simply taking your monthly debt payments and dividing them by your total monthly income. A DTI of 50% or less is generally required to be approved for a mortgage.


• Lenders’ Terms
  
  If you're set on buying a home, getting pre-approved by multiple lenders can be a smart move. Take the time and compare different lenders. It's important to do your research and find one that offers competitive rates and terms to suit your needs. Plus, having multiple pre-approvals can give you more bargaining power when it comes to making an offer on a home.

• Fill out an Application
  
  You'll need to provide relevant information, such as details about your job, income, debts, assets, and more. If you provide all the relevant and accurate documents, your lender will be able to assess your mortgage eligibility better.


• Receive Verification
  
  The lender reviews and confirms the provided information, including income and employment status, credit score, and debt-to-income ratio.


• Obtain Loan Estimate
  
  After submitting your documents, it usually takes three business days for the lender to provide you with a response about your loan estimate.


• Get the Pre-Approval Letter
  
  If you're eligible, you'll receive a written pre-approval letter that outlines your borrowing ability. It's like having a golden ticket to house hunting!
  
  To make the pre-approval process even more convenient, many lenders offer online pre-approvals. This allows you to easily upload your documents, fill out an application, and receive a pre-approval decision from the comfort of your own home. Just be sure to do research about the lender and read reviews before submitting any personal information or fees.