Entering the housing market can often be overwhelming and stressful, especially concerning finances. Knowing how much you can afford to buy a home, what type of loans you can be approved for, and the interest rate you may be looking at can help make the homebuying process easier. A mortgage pre-approval will determine these factors and more.
Here is a breakdown of the mortgage pre-approval process to help determine if getting pre-approved for a home loan is right for you!
What is a Mortgage Pre-Approval?
A mortgage pre-approval helps determine how much money you can borrow to buy a home. During the pre-approval process, a loan officer will examine your finances, including your income, debt, assets, and credit history, to determine how much you can borrow related to specific types of loans.
However, mortgage pre-approvals do not guarantee you will get a loan for the home you are interested in purchasing. The mortgage pre-approval process refers to determining how much money you can borrow to purchase a home. However, the final decision is based on many other factors.
What Documents Do You Need for a Mortgage Pre-Approval?
Mortgage lenders or loan officers will often ask for the following documents:
- Proof of income.
- Verification of employment.
- Identification (driver’s license, social security card).
- Credit history.
- W-2 statements.
- Pay stubs.
- Bank statements.
- Federal tax income forms.
Once you have submitted all your information to your mortgage lender or loan officer, you should receive your pre-approval letter within a few days, informing you of whether you’ve been pre-approved and for how much.
Why Should You Get a Mortgage Pre-Approval?
Even though mortgage pre-approvals do not guarantee that you will get a mortgage loan, there are some advantages.
- Mortgage pre-approvals give real estate agents the confidence to work with you. A pre-approval letter shows real estate agents that you are a serious buyer and helps real estate agents narrow your home search to properties in your price range.
- Mortgage pre-approvals make house hunting easier. Since mortgage pre-approvals determine how much you can afford, getting pre-approved makes the house-hunting process easier by narrowing the homes within your budget.
- Mortgage pre-approvals give sellers confidence in your offer. A pre-approval letter shows sellers that you are a serious buyer. Mortgage pre-approvals also show sellers that you can finance the amount you have offered.
- Mortgage pre-approvals can help speed up the closing process. You submitted the needed information for getting a mortgage during the pre-approval process, so it is already in the system. As a result, you have already completed most of the mortgage process, allowing you to focus on preparing to move into your new home.
Are Mortgage Pre-Approval and Mortgage Pre-Qualification the Same?
These terms are often used interchangeably but do not have the same meaning.
A mortgage pre-qualification does not review your financial background as thoroughly as a pre-approval. With a mortgage pre-qualification, you do not provide as much financial information, and your lender or loan officer may not request a hard credit inquiry. So, since you do not submit the supporting documentation during the process, your lender or loan officer can only give you an estimate; therefore, the approval amount, the type of loans you qualify for, and the interest rate can change.
Mortgage pre-approvals require more in-depth information, such as pay stubs, credit history, W-2 forms, and more, to give you more precise information to help you determine the best financial decision when getting a home loan.
We specialize in conventional home mortgages, FHA, VA, 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.