Buying a home is an important and large financial decision. For most people, a home is the most expensive purchase they will ever make and almost always means you will be obtaining a mortgage. So to get started, you need to be pre-approved for a mortgage.
What Is a Mortgage Pre-Approval?
A mortgage pre-approval is a statement of how much money a lender will lend you to buy a home, contingent on a few things yet to be determined before closing. Mortgage pre-approvals are based on your finances, such as how much you have to pay for the down payment and closing costs and your income, debts, FICO score, and other qualifying factors.
The final loan approval occurs when you have a contract on a home and submit the required documentation, such as the appraisal.
Mortgage Pre-Approvals Are Not Guarantees
A mortgage pre-approval is the process of a loan officer reviewing the financial documents you submitted with your application, along with your credit history, to determine how much money you can borrow to buy a home. Other factors are considered, such as the property you are interested in before the mortgage is finalized. Therefore, a mortgage pre-approval is not a guarantee or promise to lend you a specified amount of money.
Sellers Prefer Pre-Approved Buyers
As a pre-approved buyer, you will receive a pre-approval letter showing sellers and real estate professionals you are approved to purchase a home up to a specific amount.
Sellers and real estate professionals don’t like to waste time and want to focus on buyers with the finances to close on a property in their price range. That’s why sellers and real estate professionals prefer to work with pre-approved homebuyers.
Homebuyers who are serious about purchasing a home will get pre-approved for a mortgage before searching for a home. Plus, pre-approved homebuyers have an advantage over other buyers who are not approved, which helps in very competitive housing markets.
Requirements for a Mortgage Pre-Approval
There is a process to follow to be pre-approved for a mortgage. Pre-approvals are based almost entirely on financial documents submitted to the lender, so you’ll be asked for a few essential documents. These include:
- Proof of Income: These include W-2s, wage statements, recent pay stubs, tax returns, and other similar documents that show how much you make from your work.
- Proof of Assets: Documentation is necessary to demonstrate the availability of cash for the down payment and closing costs and that paying those costs will not deplete your resources. If you own other significant assets, such as investments or other properties, these can be used as part of your proof of assets. Plan for a 20% down payment unless you qualify for FHA, VA, or similar mortgage loans that reduce or eliminate the need for a down payment.
- Credit Score: The lender will make a hard pull credit inquiry for your credit report. A higher credit score generally results in a lower interest rate and monthly payment.
- Employment Verification: Documentation to verify your employment varies, depending on your job and sources of income. The lender may also call your employer. If you are self-employed, be prepared to show that your employment is stable, which typically requires your tax return for the last two years.
- Additional Documentation: Be prepared to supply additional documentation, such as a copy of your driver’s license and your Social Security number (SSN). As the process unfolds, you may be asked for additional documentation as deemed necessary.
Pre-Approvals Take Time, so Apply Early!
Getting pre-approved isn’t instantaneous. So, ensuring you have all the required documentation when filling out and submitting a mortgage application is important. So, start the mortgage pre-approval process early. To help, your mortgage broker will also pre-qualify you for a mortgage, which takes just a few minutes and allows you to start looking for a home as a qualified buyer.
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.
Updated on October 26, 2022