Pre-approvals for a mortgage loan are like getting verified on Twitter. It’s a sign that you’re the real deal.
Getting pre-approved before you start shopping for a new home isn’t a requirement, but it definitely gives you a leg up. We want to help you get your dream home, and a pre-approval letter gets you one step closer.
So, what is a pre-approval? How do you get one? Is it worth it? Let’s take a look.
What Is Pre-Approval?
A pre-approval determines how much money you can borrow to purchase your home. Lenders analyze your income, assets, and credit score to determine three homebuying factors:
- The type of loan you can get approved for
- How much you can borrow
- What the interest rate will be
The lender will then provide you with an official pre-approval letter that details this information.
It’s important to note that pre-approval and pre-qualification are NOT the same. Pre-qualifications can be beneficial in providing insight into your loan opportunities, but are less in-depth and therefore less accurate.
How Do You Get Pre-Approved?
The pre-approval process is essentially a mortgage application. Your lender will want to evaluate your finances, which includes reviewing documentation in the following areas:
- Proof of income
- Employment verification (bank statements)
- Proof of assets (retirement or investment account statements)
- List of any liabilities
- Credit history (rent history, credit report)
- Debt-to-income ratio (DTI)
How Does a Pre-Approval Help You Buy Your Dream Home?
Your pre-approval letter essentially says, “you can buy a house worth X amount of money,” because you are highly likely to get a loan for the amount stated by your lender.
Your real estate agent will typically want to see your pre-approval letter before showing you houses to ensure you both aren’t wasting time looking at homes outside your budget.
It will also be valuable when making an offer on “the one,” because it shows the seller you won’t have problems getting financed for the amount you’re offering. That’s all the more important if it’s a hot property and others are making offers. With pre-approval, you may already be one step ahead of those other potential buyers.
And because a pre-approval is “essentially a mortgage application,” the rest of your home buying process will go a lot smoother. By doing some of the work upfront, you can shift your focus on the fun stuff, like your living room color scheme or building a backyard entertainment space.
If you’re considering a move or looking into buying your first home, it’s a great time to start the pre-approval process! And we can help! Click the blue button in the top right corner of our home page to get started. If you have questions, reach out to us! We’d love to help you take the next step on your homebuying journey.