The Mortgage Pre-Approval Process
Geting pre-approved for a mortgage is one of the best things you can do when beginning your home buying journey.
Mortgage pre-approval is a promise from your lender that they agreed loan you a certain amount of money at a specific interest rate. This money may be subject to a property appraisal and other requirements, but its effectively your “cash limit” to buy a house. The amount you will be approved for depends on your creditworthiness.
During the mortgage pre-approval process the lender examines your credit history and verifies your income. If you’re granted a pre-approved mortgage loan you will receive a pre-approval letter, stating your loan will be approved once you make an offer to purchase a home. You will be required to submit a purchase contract, preliminary title information, appraisal and your income and asset documentation to the lender at the time of offer.
Pre-approval does not completely guarantee your loan will be approved and is generally only valid for 60-90 days
What Does ‘Pre-Approval’ Mean?
Pre-approval means the lender guarantees the purchase price against your ability to make the necessary down and to sufficiently cover your future mortgage payments.
The lender also needs to make certain the property’s value covers the loan amount. In other words, the home must be appraised for more than the purchase price.
The First Step
Before trying to get pre-approved for a mortgage check your credit score. You’ll have a better idea of what kinds of loans and interest rates you may qualify for and you’ll have time to clear up any errors you find on your credit report. You can see get your credit report at myFICO.com
Mortgage Pre-Approval Document Requirements
Getting pre-approved for a mortgage is easy.
Your lender will want to see the source of your down payment and reliable income to cover the future payments of the mortgage.
- pay stubs
- tax returns
- W-2s from the previous two years
Additional sources of income.
Your lender will want to also see if you have additional sources of income to be able to cover future payments on the mortgage and to be able to pay off the principal faster than the agreed terms.
- a second job
- commissions and bonuses
- interest /dividend income
- Social Security payments
- VA /retirement benefits
- alimony or child support
Your lender will also likely want to see information about any of the other assets you have, aside from your income.
- bank account statements
- properties owned
- mortgages held
- assets held
If money is being given to you by a friend or family member for the purpose of the mortgae being pre-approved, a gift letter, which shows the money is not a loan must be provided.
You will need valid forms of identification such as a driver’s license and passport, or other government issued picture I.D. You will need to provide your Social Security number for a credit check so you don’t have to worry about bringing your credit report with you.
Pre-approval typically takes two-four weeks, but with automated underwriters it can be a day or even an hour. Just depends on the underwriters and the lender’s pre-approval process.
Within forty-five days you can attempt to get pre-approved from multiple institutions because the lenders will know that you’re only trying to buy one home. Your credit report will only show a single hard inquiry so long as all of your lenders do their research during those forty-five days.
Why Is it Important to Get Pre-Approved?
The real estate agents and the seller will want to see a pre-approval letter when you make an offer. Without this document, it will be hard for you to be taken seriously as a buyer.
In a competitive housing market sellers want pre-approved buyers because a pre-approval on a mortgage lasts 60 to 90 days. This time limitation often leads to quicker transactions as the buyers do not want to be pre-approved for a mortgage again and the sellers want to capitalize on a potential sale.
Understanding the Mortgage Loan Application Stages
The three basic stages of the mortgage application process are pre-qualification, pre-approval, and mortgage commitment.
A mortgage professional interviews you about your assets, income, and expenses. Getting pre-qualified gives you a general range of of home prices you can afford. Pre-qualification doesn’t bring you any closer to securing a mortgage, may give you insights into what you can afford on the market.
A lender examines your credit reports, employment history,and income to determine which loan programs you qualify for, the maximum amount you can borrow, and the interest rates you will be offered.
This loan representative is not the one who approves your loan. That is the underwriter’s role and underwriting is often automated.
In order to submit your mortgage application for pre-approval, you must provide your last two years’ tax returns and W-2s, thirty days of pay stubs, sixty days of bank account statements, and a signed authorization to order your credit report.
The automated underwriter delivers a mortgage pre-approval letter within minutes and will list any conditions that need to be met for full approval.
After approving both you and appraising the property successfully and verifying your ability and willingness to repay the loan, your loan representative will submit your complete application to the underwriter.
The underwriter will return one of four decisions:
approved with conditions
suspended Meaning they need more documentation
Being pre-approved for a mortgage loan is crucial in the home-buying process. Having that official documentation validates your purchase offer for most sellers.
If your first application gets rejected, get a second opinion from a lender within 45 days if you have a valid reason why you should be approved.
By following this mortgage pre-approval process you are a step closer to owning your dream home.
(561) 667-5965 Jesse Daberkoe email@example.com
Jesse is a Senior Loan Officer and Branch Sales Manager with Absolute Home Mortgage Corporation.
He is able to guide and educate home buyers through the process of qualifying for mortgage loans that fit their financial needs.
This includes explaining the options of various types of mortgage loans and help applicants choose the right one for their situation.
Jesse is always in constant contact with the borrower through the loan process from pre-qualification all the way to the closing table.