Mortgage pre-approval is the process by which lenders assess your income, assets, and credit score in order to determine what loans you might be qualified for, how much you may borrow, and what interest rate you may expect.
Getting a pre-approval is an important first step in your home buying journey. Find out why you need one and what you can do to prepare for this process.
Is preapproval the same as prequalification?
This is a common question asked by our clients. Preapproval is not the same as pre-qualification.
Pre-qualification is an early step in your home buying journey. When you are pre-qualified, you get an estimate of what you may be able to borrow, based on the information you provide, and a look into your credit check.
When you are serious about buying a home, you need to go through the preapproval process. To get preapproved, you’ll be providing more detailed information about your finances. The lender will verify the information and check your credit score.
If you’re preapproved, you’ll receive a preapproval letter with an offer to lend you a specific amount good for 90 days. Take note that this is an offer, not a commitment, to give you a loan. You still need to get full approval when you find your home.
What are the benefits of getting a preapproval?
There are several benefits to getting a preapproval before you go house hunting.
First, it allows you to know how much money you can borrow and what kind of interest rate to expect. This puts you in a much better negotiating position when it comes to making an offer on a home.
Second, a mortgage preapproval letter shows sellers that you’re a serious buyer, which can give you an edge over other buyers who haven’t gone through the pre-approval process.
Third, you will save time once you find the home you want to buy. The pre-approval letter will expedite the loan process because the lender will already have most of the information they need.
What do you need to get a mortgage preapproval?
In order to get mortgage preapproval, you’ll need to provide the lender with information about your income, assets, and debts. You’ll also need to undergo a credit check.
To make sure you’re prepared for this process, gather up the following documents before you apply:
-W2 forms from the past two years
-Federal tax returns from the past two years
-Pay stubs from the last three months
-Bank statements from the last three months
-A list of your debts and monthly payments
-A list of your assets, such as savings accounts, stocks, and bonds
Once you have all of these documents, you’re ready to start the preapproval process.
Will a preapproval affect your credit score?
Some people are concerned about how a pre-approval will affect their credit score. The answer is yes, a preapproval could hurt your credit score, but it’s only temporary. As long as you keep your credit card debt low, and pay your bills on time, your credit score will bounce back.
The best way to avoid any negative impact on your credit score is to shop around for a mortgage within a 14-day period. This is called a “rate shopping period.” By doing this, you can get multiple preapprovals without it affecting your credit score.
The preapproval process is an important first step when buying a home, even if it temporarily brings down your credit score by a few points.
Take the next step to buying your dream home.
Getting a mortgage preapproval is not as complicated as it may seem. By being prepared and working with the right lender, you can get through the process quickly and move one step closer to buying your dream home.
If you’re ready to get started on the path to homeownership, then give us a call. We have been helping first-time homeowners in their buying journey, and we’d love to help you with your first purchase.
Contact us at 917-999-6666 to set up a meeting.