Are you wondering when you should get a pre-approval for a home loan
during the buying process? Here, we look at when and how far in advance
of purchasing a home you should get pre-approved. We also look at why
you should get the pre-approval.
When Should I Get Pre-Approved For A Mortgage?
Ideally,
you want to get pre-approved for a mortgage before you start looking
for houses. Doing so will help you find any obstacles to your
pre-approval like having excessive debt or a poor credit score. You’ll
also be able to determine your home-hunting price range.
Additionally, you will become more competitive in the market in
comparison to buyers who have not gotten their pre-approval. All of
those aspects will help your cause when the time comes to shop for a
house.
Overall, a pre-approval is a preliminary review of your financial status to determine:
- Your purchasing capacity
- The amount of risk you bring
The lender performs it at the moment you apply for a loan. But it can also be done before you hand in a formal application.
The pre-approval process serves two purposes:
- The lender wants to know if you are qualified to borrow funds from them. Hence they will look at your credit score, debt level, current employment and income status, and other financial aspects.
- It helps you to identify your price range in terms of the loan amount.
Why Should You Get Pre-Approved Before Shopping for a House?
In
most cases, it makes sense for a home buyer to get a mortgage
pre-approval before they begin to shop for homes. The process of getting
pre-approved for a mortgage helps you concentrate your search on the
sort of homes you can afford, depending on the creditor’s willingness to
lend.
However, the pre-approval review process is not a substitute for
budgeting. You need to review your income and expenses to establish how
much you can afford in monthly payments.
The process of pre-approval comes into play later, when you are ready
to shop for a property. You should have a budget in mind already before
you move onto this phase.
There is also another good reason to get a pre-approval before home
hunting. A house seller will give your offer priority over other buying
offers that have not been reviewed by a lender. In other words, you’ll
be taken more seriously as a potential home buyer.
Overall, it makes excellent sense when you look at it from the
seller’s point of view. No seller wants to accept an offer from somebody
who does not qualify for a mortgage loan. Therefore it’s wise to get
pre-approved before hunting for homes.
It is also worthwhile to note that preapproval is different from
final approval. You can still be rejected for a mortgage even after a
loan officer has pre-approved you. It is a common occurrence.
“Pre” means that it happens at the beginning of the mortgage process.
For you to receive final approval from the mortgage lender, you also
need to undergo a rigorous underwriting procedure. The underwriter will
typically review your application and your credentials to establish
whether you’re an acceptable risk. If the underwriter issues a green
light, then you will get final approval.
What Documents Are Necessary for a Mortgage Pre-approval?
The
lender will want to confirm your identity, credit history, working
history, income, and monetary assets to give a pre-approval. He or she
will probably ask you to fill out a residential loan application, called
1003 (“ten-oh-three”).
The 1003 application will ask for your details, financial information, and loan details, which include:
- Bank accounts, including your retirement account
- Any other assets you own
- The property you own
- Employment and income information
- Your employer’s contact details
- Debts you owe
Your lender will also perform a hard credit -inquiry and might require supplemental documents based on your situation.
