At first sight, the mortgage process can seem arduous, between the application process and masses of financial documents, getting your loan approved can feel overwhelming.
One of the first steps is receiving a pre-approval so you know what your budget is and can write more attractive offers to sellers. A local, experienced realtor can guide you through the process and help you cover your bases.
But if you aren’t sure what a pre-approval is, how to receive one, or why it even matters, here’s a list of seven FAQs about the pre-approval mortgage process.
What is a mortgage pre-approval?
A mortgage pre-approval is when a loan officer looks at your financial situation, such as your income, debts, assets, and credit history. With this information, they determine the total amount of money you can borrow, what interest rate you qualify for, and what your monthly repayments would be.
Once you are pre-approved for a mortgage, you will receive a letter that you can present to sellers with any offers you make. A pre-approval letter is an excellent negotiating tool, as it lets sellers know you can afford the home.
What is the difference between pre-qualification and pre-approval?
A mortgage pre-qualification gives buyers an estimate of how much they can afford to spend on their potential new home. During a mortgage pre-qualification, the lender does not review credit history or request verification of financial documents. The loan figure is an estimate only and made in good faith based on what information the buyer provides.
On the other hand, a pre-approval takes a closer look at the buyers financial situation and verified documents to make an informed decision. Remember that pre-approval does not guarantee that a loan will be approved, but it’s closer to approved than pre-qualification.
Do mortgage pre-approvals affect your credit score?
A mortgage pre-approval is a request for credit, it usually results in a “hard pull” by the lender on your credit report. This means that it can cause a temporary drop in your credit score.
The good news is that because lenders and credit scoring companies understand the need to shop around for interest rates on a home purchase, they will lump together several pre-approval requests as one — as long as they occur within two weeks. This enables buyers to apply for pre-approval from several different lenders without more than one hard pull on their credit score.
How long does it take to get pre-approved for a mortgage?
Getting pre-approved for a mortgage can take as little as one to three days. Preapproval is the first step in your mortgage approval and can help ensure that your final loan approval is goes quickly.
To speed up the pre-approval process, it is crucial that you present all of the financial documents requested by your lender promptly. Once pre-approved, you will receive a letter from your lender as evidence, which is typically valid for around 90 days.
What do you need to get a mortgage pre-approval?
In order to be pre-approved for a mortgage, you will need to give your loan officer several documents. First and foremost, you will have to provide a valid form of identification, such as a government issued I.D. and your Social Security number.
The other most commonly requested documents are your last three pay stubs, the previous two years tax returns, and any documents that can be used to verify additional income. Lenders typically also request evidence of any assets that you have, in the form of bank account statements or investments.
Can you be denied a home loan after pre-approval?
Yes, you can still be denied for a mortgage loan even after receiving pre-approval.
During the pre-approval process, a lender will pull your credit score and verify your income and financial situation, but this doesn’t mean you’re in the clear. It is crucial that you do not make any significant purchases or take out any other credit until you close on your home, as this could cause the loan to be denied during the underwriting process.
What is included on a pre-approval letter?
Pre-approval letters contain essential information pertaining to your loan product. This includes the loan amount and type, how much you are planning to borrow, and the interest rate. They also include the date of the pre-approval expiration.
Buying a home is a substantial financial commitment and should not be entered lightly. It is essential that you seek advice from experienced professionals, such as a knowledgeable local real estate agent. If you would like more information about the real estate financing process and how you can get started, speak to one of our top performing Clever Partner Agents.