How to Get Pre-Approved for a Mortgage Home Loan

One of the best things you can do to help ensure your best possible shot at getting the home you want is to get a pre-approved mortgage loan.

First things first; you’ll need to shop for a lender. A good lender will work closely with your specific situation and explain the loan and buying process and answer all your questions.

Mortgage pre-approval is basically a promise from the lender that you’re qualified to borrow up to a certain amount of money at a specific interest rate, subject to a property appraisal and other requirements.

What does pre-approval mean?

Pre-approval means the lender is confident you can make a necessary down payment and your income is sufficient to cover mortgage payments. At this stage, only one concern remains. The lender needs to make certain the property’s value offers sufficient collateral in relation to the loan amount. In other words, the home must be appraised for an amount more than, or equal to, the purchase price.

Why do you need a pre-approval letter?A pre-approved mortgage home loan being signed.

  • A pre-approval letter will give your real estate agent a price range to know what homes to include in your search. It outlines the loan amount and terms you are approved for.
  • Pre-approval gives you a negotiating advantage. A seller might be more inclined to accept your offer if you have a pre-approval letter, even if you make an offer that’s lower than a buyer without a pre-approval. Sellers want the assurance of knowing their buyer can get financing since they are also planning on a home move.
  • A pre-approval letter is a stronger option than a pre-qualification letter because the approval is based on verified credit, income and asset data that an underwriter has reviewed and approved. The pre-qualification is based only on the data provided on the loan application that has not been verified or reviewed by an underwriter.

In the mortgage pre-approval process, the lender looks closely at your credit and verifies your income (as opposed to pre-qualification, for which your information is not verified).

If you’re granted a pre-approved mortgage loan, the lender gives you a pre-approval letter, which says your loan will be approved once you make a purchase offer on a home.

Keep in mind, though, that pre-approval does not completely guarantee your loan will be approved and is generally only valid for 60-90 days.

The first step

Before trying to get pre-approved for a home loan, check your credit reports and credit scores. By taking this first step early on, you’ll have an idea of what kinds of loans you may qualify for and you’ll have time to clear up any mistakes or problems you find on your reports before you start home shopping.  Keep in mind that a lender will most likely pull a different type of credit report than what you pull which is a consumer credit report.  Be ready for a score variance and talk to a lender about what you can do to keep your scores high or improve them.

What else you need for mortgage pre-approval?

The process of getting pre-approved is actually quite simple. All you have to do is provide your lender the documentation that they require, which may include:

  • Personal information such as your driver’s license, Social Security number, marital status, contact information and address
  • Recent statements from your bank accounts and any investment accounts (exactly how far back you’ll have to go depends on the lender)
  • Employment information, including where you have worked and for how long, as well as recent paycheck stubs and W-2 income tax forms for the last two years
  • Your overall financial condition, which includes all of your assets (stocks, 401(k), IRAs, bonds, cash)
  • Profit and loss statements if you are self-employed
  • Rental property income
  • Gift letters, if you are using a gift from a relative to help cover the down payment

In today’s technology centered world, it is helpful to create a folder in Google Drive or Dropbox where you can upload and update all documents in one place. If you wind up ultimately choosing a different lender than the one you used for your preapproval, you’ll be able to share documents with just a few clicks.

A mortgage pre-approval letter puts you head and shoulders above other buyers who may be interested in the same home as you are — but it’s not a guarantee. The pre-approval process does not include a full-fledged underwriting review by the lender, so it’s not an absolute commitment to issue you a home loan, though it is pretty close.

Ultimately, banks want to minimize the risk they take on with each new borrower. Having your finances under control removes a lot of risk from the equation—not just for the banks, but for you as well.  The home-buying process can be long and complicated. Preparation involved in getting a pre-approval letter is fairly simple and it helps both you and the seller in the long-run.  Please contact us if you would like us to help you with your financing needs.

The Certo Team
55 N. Arizona Place Suite #103
Chandler, AZ 85225
602-429-6789

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