There it is! The home of your dreams. You are day dreaming about making meals in the spacious kitchen and hosting parties outside near the pool. Yes, this is the perfect home. Unfortunately, the mortgage loan company can’t approve you for the amount needed to make the purchase. Disappointed by this realization, you begin looking at other properties. Keep this from happening to you by getting a mortgage loan pre-approval.
✔️ What is a Mortgage Pre-Approval?
Most home buyers will require a mortgage loan to finance their home purchase. A mortgage pre-approval let’s you know that you will be able to secure the mortgage loan and how much you can expect to receive. You’ll want to get a pre-approval and not a pre-qualification. The process includes a hard inquiry on your credit report. The pre-approval typically lasts 30 days, but it can help you set a target price range and may give you an edge with a seller.
⚠️ Pre-Qualified vs. Pre-Approved Mortgage
Though many people use the terms in much the same way, a pre-qualification is different from a pre-approval. Knowing the difference can save you time when it comes to the loan process.
A pre-qualification means that you may qualify for a loan but there’s no guarantee. The lender will use basic information you provide, but there will be no hard inquiry on your credit report or verification of documents. The lender is just getting an overall picture of the state of your income, debts, and assets. You’ll get a general idea of the amount of the loan you may qualify to receive.
A mortgage loan pre-approval is a stronger determination that comes with an accurate target range for loan amount. The process of getting pre-approved requires a verification process.
📝 What is the Pre-Approval Process?
The pre-approval process requires you to supply to your lender detailed financial data. You may or may not have to meet with your lender during the process. Be prepared to dig deep into your finances and share that information with the lender.
In addition to obtaining your credit report, your lender may require that you pay a loan application fee. In most cases, this is non-refundable if you are not approved. They will also want to verify your identity with a diver’s license or officially issued ID. You’ll submit copies of your bank statements, savings account records, and money market accounts. Other paperwork may include proof of retirement accounts, stocks, IRAs, or mutual accounts. They will want your recent tax documents and recent pay stubs.
The lender will review the information you submit, run your credit report, and provide you with a Good Faith Estimate (GFE). A GFE is a document that provides you with the loan terms and an estimate of the loan amount. It will include an estimate of closing costs that you may be responsible for paying.
🗓 How Long Does a Mortgage Pre-Approval Last?
A mortgage loan pre-approval will eventually expire, but the time limit depends on the type of loan that you’re hoping to secure. In general, a pre-approval is good for 30 days. Don’t let this put a rush on you when it comes to choosing a home. A pre-approval is easily reissued by the lender in a short amount of time if your information and credit score hasn’t changed since the first pre-approval. It’s important that you don’t make any large purchases that require financing during this period because that can change your debt-to-income ratio and change your credit score.
📑 Benefits of a Pre-Approval Letter
Having a pre-approval loan letter on hand when going through the home buying process can be beneficial in several ways. You’ll have a good idea of exactly how much you can afford when it comes to looking at homes. It will remove the doubt that can set in about being able to follow through with a purchase. It can speed up the process once you’ve placed an offer and move forward with the purchase.
A pre-approval letter can also hold weight with a seller when you place an offer on a property. This is increasingly important when there are multiple offers on the table. You want your offer to stand out from the others and appeal to the seller. A pre-approval letter shows that you are serious about buying the property and that you can complete the purchase if your offer is accepted. It may even help you negotiate for favorable terms because of the strong foundation it creates for the purchase.