A mortgage pre-approval lets you know just that and is relatively easy to get. Let's find out how.
A mortgage pre-approval is a process in which you establish how much you can afford to borrow to purchase a home. Lenders will determine your assets, credit score, and income so they can decide what loans you're eligible for, how much they can lend you, and what your interest rate could be.
Don't let a pre-qualification be confused with a pre-approval. They are not the same thing. Pre-qualification is similar, although it doesn't determine as much information. It's a first look at your finances that doesn't require a full, or tri-merged, credit report, or bank payments and pay stubs. A pre-approval can determine much more critical information, whereas a pre-qualification is only an estimate.
A pre-approval is not the same as an actual approval. A pre-approval helps with the final approval because you have already provided your required financial information. However, other factors with the actual house still need to be approved. The lender needs to approve the following property details, to name a few:
The first thing you'll need to do is verify your financial information with your lender so they can estimate your potential loan. Here's what's required on your end:
Getting pre-approved is the same as applying for a mortgage loan. You will provide all of your financial information to your lender, and they will take an in-depth look to determine what kind of loan you need. Your lender will need to review:
So that your lender can review the things mentioned above, you will need to provide:
The right time to get pre-approved is when you know you're ready to start looking for a new home to buy. This way, you understand just how much you can afford, which will help your search. Knowing how much you may borrow from your lender is highly informative when figuring out price points. Having already been preapproved when you contact a real estate agent will also solidify that you're ready and able to buy a property.
A pre-approval is often required in this current housing market! Most sellers won't allow prospective buyers to make offers or even view properties without a pre-approval letter from a lender.
While getting pre-approved means that you'll have a hard inquiry into your credit, it doesn't mean it will significantly affect your score. In fact, it's encouraged for borrower's to shop around with a few different lenders! Once you have your credit pulled with a hard inquiry, it will start a shopping period (approx. 45 days) to allow multiple hard inquiries with mortgage lenders that will solidify into one "single" inquiry at the end of that 45-day period. This means your credit score is only affected by "one" inquiry instead of several.
You will receive a pre-approval letter once you've been pre-approved. This is your golden ticket for a couple of reasons. Real estate agents prefer to see your letter before they show you houses, which ensures that they are showing homes you can realistically afford. You may also share this letter with the seller when you're ready to make an offer. It ensures that you can indeed put your money (or the lender's) where your mouth is.
Understand that your pre-approval does indeed have a time frame on it, typically 60-90 days. Be mindful of when it expires throughout your house hunting journey. The good news is you can always extend by showing your lending your current credit score and financials.
Whether you apply for a mortgage in person or online, getting pre-approved has many benefits when looking for a new home. It gives you control of the process and shows everyone else (real estate agents, lenders, sellers) that you're serious about buying a home.