How to Get Pre-Approved for a Mortgage: Loan Approval Explained

Tips for getting pre-approved for a mortgage

If you start looking for your new home before you know how much you can afford to spend, you will be disappointed. It’s easy to start looking for homes that you later find out you can’t afford when trying to get approved for a mortgage. However, if you have a mortgage pre-approval, you’ll know where you stand and be in a better position when you make an offer.

Let’s review what a pre-approved mortgage is and how to apply for one. Getting pre-approved will put you in a much better position to land the home you want.

What is a mortgage pre-approval?

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How to get pre-approved for a loan

The pre-approval process tells you how willing a lender is to help you buy your home. The lender will look at your finances, income, expenses, credit score, etc., to assess your ability to pay.

Not only does the pre-approval show you how much you can borrow to buy your home, it gives you an indication of the interest rate you’ll be paying.

Pre-approval or pre-qualification?

You might hear the term “prequalification” when talking to a lender; although it is not the same as being “pre-approved”, there are similarities. The two terms are frequently used interchangeably by lenders, which doesn’t help matters.

Prequalification generally doesn’t require as much information from you, nor will your lender perform a credit check. As such, this qualifying process will only give you a rough idea of ​​how big a mortgage you can get. When trying to get approved for a loan, you may find that you don’t get the amount you anticipate if you haven’t been prequalified.

The pre-approval process will often require you to provide bank statements, pay stubs, etc. The lender will also check your credit report to see your credit score and the amount of your debt. There will also be an employment verification process.

Compare a mortgage pre-approval to a full approval

A pre-approval will give you a good idea of ​​how much you can afford to spend on a home, but you’ll still need to get full approval when you find a property you want to buy. Additional checks will need to be carried out by the lender, including an appraisal of the home.

The lender must ensure that the house is really worth the amount you have agreed to pay. If the amount of the appraisal is lower than the offer you made, the mortgage loan could be refused.

The lender will also need to verify that the title is correct. This means that they will work with the title company to ensure that the seller owns it and that there are no liens against them.

Another factor may be the condition of the home. If there are issues like cracked windows or a roof that needs fixing, there may be issues with some types of loans. The FHA loan program requires issues like these to be resolved before the home can be closed.

Lenders are also very careful about where your money is coming from. If you have large cash deposits, they will want to check where that money is coming from. They do this because they have no idea if those funds are actually money that you have earned.

Benefits of being pre-approved

A mortgage pre-approval helps you understand which homes you can afford, so you don’t have to look at properties that are out of your price range. Many real estate agents will want to know that you are pre-approved before showing you homes.

When you make an offer, your offer is much stronger if a mortgage pre-approval backs it up. If the seller has more than one offer to choose from, they are more likely to opt for the one that is least likely to fail. Pre-approval shows sellers that your offer is more serious since you have the finances ready. A seller will be more confident that they will move their home from contingent to pending status when they know a buyer’s finances are strong.

Pre-approval can also reduce the time it takes to close the house. When you already have a mortgage pre-approved by your lender, some of the work has already been done and your loan won’t take as long to be fully approved. This can be important if you or the seller need the process to go as quickly as possible.

What is a pre-approval letter?

You will normally get a pre-approval letter for the mortgage once you have gone through the process with your lender. This letter can then be shown to real estate agents to take you seriously and show you homes.

The letter will also need to be shown to the seller so they are happy that your offer can be honored. This reduces the chances of the sale failing due to financing issues.

The mortgage pre-approval process

The first step in the pre-approval process is to find a lender to offer you a good deal on your mortgage. However, even before that, it’s a good idea to make sure your financial situation is the best it can be.

Check your credit report so you can resolve any issues that could cost you lots of extra money for your mortgage. If you know you have minor credit issues but don’t know how you can quickly increase your score, you can try using Credit Karma. They are a great vehicle to use to improve your creditworthiness and free to boot.

Compare lenders based on the interest rate they offer and the fees they charge. Once you find a lender that suits you, you can apply to find out what they will offer you. However, you don’t have to stick with that lender when seeking approval if you find a better deal.

You will need to fill out an application, which can happen online, telling them your financial status and personal information. Although they don’t ask you to provide documents to prove your income and assets, you should have those numbers ready to complete the application. However, they will need these documents when you request pre-approval.

They will verify the information you have given them to provide you with a mortgage offer. This should show you how much you’ll need to find for a down payment and what your closing costs are likely to be.

If you are satisfied with the mortgage offered to you by this provider, you can request a pre-approval. If your application is successful, you will receive a mortgage pre-approval letter so you can start finding your perfect home. Getting pre-approved for a mortgage doesn’t have to be reserved for a single-family home. Pre-approval could be for a condo or townhouse purchase, a two-family loan, or even land.

Final Thoughts on Mortgage Pre-Approval

Getting your hands on a mortgage pre-approval letter is a necessary step to show sellers and real estate agents that you are a serious buyer. It will also give you a better understanding of how much a home loan will cost you and what you can actually afford to buy.

I hope you found these mortgage pre-approval tips helpful.