It’s very easy to get online and start hunting around for the home of your dreams. But that’s like eating your dessert before your salad. You’ll want to get pre-approved for a home loan before spending too much time in the search process. It’s heartbreaking to fall for the home of your dreams only to find out it’s beyond your reach. It’s also a good idea to discuss different loan options at this point so you can find the type and term of loan that works best for you: gaining understanding of how much you can comfortably afford, what interest rate you qualify for, what your monthly payments will be, and how much you’ll be paying each month when principal, interest, taxes and insurance are all considered.
Having a pre-approval letter will also put you in a better position with a home seller when you’re ready to make an offer on a property.
Pre-Approved vs Pre-Qualified.
Don’t confuse a pre-qualification with a pre-approval. A pre-qualification is when a potential buyer is screened by a lender or third party to see how much the buyer might borrow as well as the terms of the loan. This is purely informational and does not obligate the lender. It’s an opinion, based on the unconfirmed information you provide. It will help you to set search parameters but it not a guarantee of a loan. If you’re still fixin’ to get going thinkin’ about getting started then you can do a preliminary pre-qualification by visiting this link or call me and I’ll connect you directly with a lender.
If you think your home purchase is at least six months out, then a pre-qualification will help you narrow your search criteria. And in talking with a lender early in the process, you’ll likely get valuable advice for improving your credit worthiness; the do’s and the don’ts
A pre-approval from a lender locks in an interest rate for a specific amount of time. It is an in-depth process that requires a potential buyer to provide a lending institution with proof of income and debts. The lender will most likely check your credit report in this process.
If you’re considering getting pre-approved for a home loan, it’s smart to make sure your credit is in good shape before you apply. You can get a breakdown of your credit strengths and weaknesses using the free Credit Report Card, which also updates two of your credit scores for free every month.
Choose a Lender
A good mortgage lender is worth his or her weight in gold, and will know how to keep the purchase moving forward smoothly through the underwriting process. The opposite is true for a bad lender, who can make the process a nightmare, jeopardizing the settlement date or the entire sale.
Consider working with a local lender. When a seller has multiple offers, their agent is going to be advising them to select the strongest offer, and the strongest offers all have pre-approval letters from local lenders. It’s a red flag for the seller’s agent to see a toll-free, online or out-of-state pre-approval letter. It’s a big plus when the listing agent can testify to the reliability of the local lender on the offers.
Ask your lender if you qualify for special programs offered to first time home buyers or veterans.
Be sure not to miss out on the best rate available. By all means, shop around for your loan.
As the application process involves A LOT of filling out of forms and data gathering, I recommend that you choose the lenders you want to deal with, and do all of the applications at the same time. Then you can make copies of all your documents at the same time.
As this is quite possibly the largest purchase you’ll ever make, I can’t stress enough the importance of working with the best. I’m happy to share my list of preferred lenders. Just ask.
Gather Your Paperwork
You’ll find each lender has basically the same requirements as to the documentation they’ll require for the pre-approval process, with some slight differences. In general, expect to provide the following items:
• A completed application, as provided by the lender
• The two most recent months (or a quarterly statement) of any asset information listed on the application. For example:
- Bank Statements for checking and savings,
- 401k and IRA statements,
- Mutual Fund statements,
- Individual stock accounts,
• Most recent months of a pay stub
• Two most recent form W-2’s
• Two most recent US Tax Returns (and if self-employed, the Corporate Tax Returns.)
• Most recent credit card statements
They’ll want every page of every statement (even those last pages that are blank or have standard disclosures).
CostsGetting a Pre-Approval Letter
The lender may ask for additional documentation. They are not trying to be difficult, rather, after the housing bubble burst, underwriters became much stricter regarding the loan approval process so a lot more documentation is needed today than it was 10 years ago.
Once your application is complete, it will generally take a few days to receive your pre-approval letter.
In addition to receiving a pre-approval letter which shows the amount you can afford to purchase, you should ask your lender to show you what that pre-approval amounts to, in terms of a monthly mortgage payment plus any Private Mortgage Insurance (PMI), taxes, and homeowner’s insurance. You should fully understand what your monthly housing payment will be. Once you’ve received your pre-approval letter, forward it to us for your file so we can have it when we are ready to submit an offer.
Get a Loan Estimate and Understand Your Closing
Within 3 days of receiving your pre-approval, you should also receive a Loan Estimate. This form will give you an estimate of the closing costs you’ll encounter at settlement. On top of your down payment, it will spell out what fees the lender is charging you.
Questions about the pre-approval process? Just call me at 215-767-3839 or email at email@example.com.