Getting pre-approved for a mortgage is one of the first steps toward purchasing and owning a home. It is an essential part of the buying process. However, nearly half of all homebuyers neglect to get a mortgage pre-approval, which can hamper the process of buying a home and frustrate sellers.
So, it is important to know how to get pre-approved for a mortgage.
What Is a Mortgage Pre-Approval?
A mortgage pre-approval is a commitment from a lender stipulating how much money a person may borrow under specific terms and conditions. The lender issues a pre-approval letter to a borrower indicating the type and amount of loan the borrower is qualified for.
To be pre-approved for a mortgage, you need to complete a mortgage application that provides information about your employment, assets, bank records, credit card debts, and other financial histories. The application will be submitted to a lender, who will determine the amount you are approved to borrow.
Difference Between Pre-Qualification and Pre-Approval
The terms pre-qualification and pre-approval might appear interchangeable. As a matter of fact, the terms are often used interchangeably, which leads to a lot of confusion. However, there is a significant difference between a mortgage pre-approval and a mortgage pre-qualification.
Pre-qualifying for a mortgage is a cursory review of your finances, without going into the same depth as a mortgage pre-approval. It is an estimate of how much you can afford to borrow for a home.
To be pre-qualified for a mortgage, you report your income, debt, and assets to your mortgage broker, who does not question or looking into the accuracy of the numbers you report. Then, based on what you told the lender, you are pre-qualified to borrow up to an estimated amount for a home. If the numbers you report to the lender are not accurate, the pre-qualification will not be accurate.
In comparison, a mortgage pre-approval is more involved, and the lender thoroughly investigates your finances to determine the amount you can borrow to buy a home.
How to Get Pre-Approved for a Mortgage
A mortgage pre-approval requires you to submit the documentation a lender needs to approve you for a mortgage, so you will need to gather all the documents needed.
By this point in the process, you should already be working with a mortgage broker. So, you should receive a list of everything you need for a mortgage pre-approval from your mortgage broker, which can vary depending on your specific circumstances.
The documents you typically must provide include:
- Income Information: Your mortgage broker can tell you which documents are needed for your type of employment. They can include pay stubs, tax returns, W-2s, and 1099s for the previous two years, as well as documents that show additional sources of income.
- Asset Information: You need to provide information about any other assets you own. This documentation can include bank statements and information about investments. Also, if you are receiving a gift to help pay for the home, you will need documentation.
- Personal Information: You will need to provide your Social Security number for a credit check, as well as a valid form of identification that can include a driver’s license or passport.
Why is it Important to Get Pre-Approved for a Mortgage?
Real estate agents and sellers will take you more seriously if you have been pre-approved for a mortgage. And, if you have a pre-approval letter in hand when negotiating to buy a home, you may have more leverage in a competitive housing market and may be able to negotiate a better purchase price.
When buying an expensive asset like a home, the smallest details can make a big difference as to whether you are approved for a mortgage, and what you will pay in interest for your mortgage.
Working with an experienced mortgage broker with a proven track record of helping borrowers is extremely important. Therefore, start working with a mortgage broker early in the process of buying a home. Even having a few extra months to get ready to purchase a home can give you time to improve your finances and lower your interest rate, making the whole process less stressful.
Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.