A Homebuyer’s Guide To Help You Get Pre-Approved for a Mortgage

As you search for a home, getting pre-approved for a mortgage is an important step to take. Pre-approval is the process of determining how much money you can borrow to buy a home. To pre-approve you, lenders look at your income, assets, and credit score to determine what loans you could be approved for, how much you can borrow, and what your interest might be. As a borrower, it’s important to know what a pre-approval does (and doesn’t do), and how you could boost your chances of getting one.

Key Factors that Lenders Will Look At Before Deciding to Pre-Approve You for a Mortgage: 

• Your credit history
• Credit score
• Debt-to-income ratio
• Employment history
• Income
• Assets and liabilities

Lenders will likely look into all corners of your financial life in an effort to ensure you’ll repay your mortgage.

Prequalification vs. Pre-Approval: 

“Pre-approval” and “prequalification” are both ways of understanding how much you’ll be approved for. Though “prequalification” and “pre-approval” are often used interchangeably, they are not the same. With prequalification, you provide an overview of your finances, income, and debts to a mortgage lender. Prequalification can be useful to estimate how much you can afford, but since a lender doesn’t pull your credit reports or verify your financial information, it doesn’t carry any weight when you make offers.

Conversely, pre-approvals are more in-depth than prequalifications. A pre-approval involves filling out a mortgage application and providing your Social Security number so that the lender can do a hard credit check. For this process, a lender pulls your credit report to assess your creditworthiness before deciding to lend you money. These checks will be recorded and impact your credit score.

Additionally, you will have to list your bank account information, assets, debts, income, employment history, past addresses, and other critical details for a lender to verify. Though this may seem extensive, you will have to demonstrate to a lender that you will be able to repay your loan.

All of these processes make pre-approval more valuable than prequalification. It means the lender has checked your credit and verified the documentation to approve a specific loan amount. Final approval occurs when you have an appraisal done and the loan is applied to the property.

When to Get Pre-Approval: 

Mortgage pre-approval letters are typically valid for sixty to ninety days. Lenders put an expiration date on these letters because your finances and credit profile could change.

If you’re just starting to think about buying a home and suspect you may encounter difficulty in getting a mortgage, going through the pre-approval process could help you identify credit issues and give you time to address them.

Seeking pre-approval six months to one year in advance of a serious home search puts you in a stronger position to improve your credit profile and save money for a down payment and closing costs.

The Pre-Approval Process: 

The timeline for pre-approval depends on the lender and the complexity of your financial situation.

8 main sections of a mortgage application for you to keep in mind: 

1. Type of Mortgage & Terms of the Loan
2. Borrower Information
3. Employment Information
4. Monthly Income & Combined Housing Expense Information
5. Assets and Liabilities
6. Details of the Transaction
7. Declarations
8. Property Information & Purpose of the Loan 
   

Pre-Approval Vs. Approval

A pre-approval is helpful when you’re shopping for a home, but you’ll need to get full approval once you find your home, and simply getting a pre-approval doesn’t guarantee you’ll get approved.

A Few Property Details Your Lender Will Need to Approve: 

• The Appraisal Value
• The Title
• The Home’s Condition

What Happens Next? 

A lender is required to provide you with a three-page document called a loan estimate within three business days of receiving your completed mortgage application. If you’re pre-approved for a mortgage, your loan file will eventually transfer to a loan underwriter who will verify your documentation against your mortgage application. The underwriter will also ensure you meet the borrower guidelines for the specific loan program for which you are applying.

Final Thoughts: 

A pre-approval is a great first step toward buying a home. It may be best to go through the pre-approval process with several lenders to compare interest rates and find the best deal. In an effort to keep your credit score intact, you will want to shop mortgage lenders within 45 days so all credit checks count as one hard inquiry. Remember that a mortgage pre-approval doesn’t guarantee you a loan. Pre-approval letters are conditional on your financial and employment information being truthful and consistent before your loan closes. Once your financial information is verified, you’ll have a clear idea of how much you can afford. Getting pre-approved before you start your house hunt will benefit everyone involved.