What is a Mortgage Pre-Approval?

There’s nothing more frustrating than falling in love with a home and then discovering you can’t afford to buy it.

Consulting with a mortgage lender is the first step you should undertake in the home buying process. Almost all first-time buyers need a mortgage to finance their home purchase, so get prepared before you look.

When you’re armed with the knowledge of what you can afford, it focuses your search and allows you to make a move when you find a home you love.

I have a pre-qualification, is that sufficient?

Lenders offer borrowers either a pre-qualification letter or a pre-approval letter, but most REALTORS® recommend you get a pre-approval letter before you start home shopping.

A pre-qualification letter states the amount a lender thinks you’ll be able to borrow based on your income and credit profile without any actual documentation.

A pre-approval letter states the amount a lender says you’ll be able to borrow based on your full documentation and verification of income and assets.

The pre-approval letter provides a much stronger case when you submit an offer to a seller.  The seller will treat your offer with sincerity and significance over an offer that has no qualification or a pre-qualification simply because they have no confidence as to whether you can actually afford to purchase the home.

Your home hunt will benefit with a pre-approval for two main reasons:

• First, you’ll have completed the credit check and paperwork requirements for a mortgage, so you’ll know your ability to finalize a home purchase. If the lender finds a problem with your credit or an error on your credit report, you’ll have time to fix it before making an offer.

• Second, since your documentation will already be in place, a mortgage pre-approval will likely speed up the process once you make an offer.

How to Find a Mortgage Lender

A REALTOR® should be able to recommend a lender or two for you to interview. You can check for a loan officer’s license and read reviews online to be sure you’re working with someone reliable.

As a first-time buyer, you should call a few lenders to find someone experienced with first-time buyer needs who can possibly help you identify special loan programs in your area.

Ask us for our recommended lenders; lenders we have screened heavily and believe offer the most competitive interest rates.  Full disclosure: we do not benefit in any way from offering lender recommendations.

What to Expect From Your Mortgage Lender

The best lenders take a collaborative approach with borrowers and explain all your loan options. When your lender checks your credit report, they should give you feedback on how to improve your credit profile.

They should also offer recommendations on how to handle your money between the time you apply for a loan and settlement day.

Your mortgage lender should provide advice about when to lock in your loan rate and discuss the pros and cons of various loan programs.

What Your Mortgage Lender Expects From You

Your lender needs you to be honest about your finances and responsive to all requests for additional information, no matter how unimportant it may seem to you. The more cooperative you are with a lender, the easier the loan process will be.

You should be prepared with tax returns (2 years), W2 or 1099 (2 years), bank statements (2 months), employer names and addresses, and your current landlord’s information.

Your lender will generate a mortgage approval based on your debt-to-income ratio and credit score, but you should also consider your budget and your own comfort level with the payment amount.

There’s no need to borrow the maximum amount you qualify for, particularly if you know you plan to spend money on items that don’t show up on your credit report. Your careful planning and preservation of your emergency fund are important for responsible, long-term homeownership.

There is considerably more to learn about the mortgage process and we are happy to help you navigate through this complicated process.  Contact us today so we can help you plan for your dream home.