A big part of the home buying process is applying for a mortgage. You should begin the mortgage application process before you even start looking at homes for sale. Lenders offer “mortgage pre-approval” to show sellers proof that you’re able to obtain financing. It’s also important that buyers approach the pre-approval process in a diligent and prepared way.
Why Is Mortgage Pre-Approval Important?
Mortgage pre-approvals have many different benefits. For one, it is a chance for you to find out whether banks are truly willing to lend to you, how much they are willing to lend, and what rate you’re likely to be offered. Potential buyers often go into the home buying process with only a rough idea of how much they can qualify for. Applying for mortgage pre-approval helps solidify that number so you can set an informed budget before you start house-hunting.
If you are pre-approved for a mortgage, the lender will give you a document stating that fact. Then, when you find a home you’re interested in, you can include your pre-approval document as a part of your offer. Sellers are more likely to want to work with buyers who are pre-approved. This letter reassures the seller that you will be able to obtain financing.
If a seller receives multiple offers on a home, they will almost always favor those that come with a pre-approval letter. And in today’s hot real estate market, almost every seller has several competitive offers on their home. If you want to compete, you need to have a pre-approval letter in hand.
How Can You Speed Up the Mortgage Pre-Approval Process?
You’re probably excited to start shopping for a home, and you may not want to wait for weeks while the lender processes your application. Different lending institutions have different processes for getting buyers preapproved, as well as turn times. It is important to ask what the expectations of you are and what timeline the lender will need to review your application. However, there are a few things you can do to speed the process up, too.
First, make sure you provide all of the necessary documents timely and accurately. Generally, you’ll need a 2-year documented employment history, proof of funds for closing, and expenses related to any other properties you own.
Look over each document and make sure it’s complete before you submit it.
What do I look out for in my Pre-Approval?
All lenders are not created equal. It is important to ask questions about how the lender pre-approves you. Some will only ask you questions, while some will require proof of documentation upfront. A pre-approval where the lender has never seen your paystub or bank statement is one that is issued only in good faith. It is not iron-clad or guaranteed.
It is also important to understand the maximum loan amount you are qualified for, what rate they are factoring in, and what they estimate your monthly qualifying payment to be. At the pre-approval stage, you typically do not have a property picked out yet. So the lender is going off of their best estimate of property taxes, insurance, and HOA for your area. When you select a property, is when the lender or your real estate professional can do the research to determine how close that property’s expenses are to the lender’s estimate.
If you are thinking of buying a home, applying for mortgage pre-approval should be one of the first steps you take. A pre-approval letter will give you a better idea of how much you can spend, and it will also reassure sellers of your ability to pay.