What Is a Mortgage Preapproval?
As you begin your home-buying journey, the first stop is finding your REALTOR®. The next stop is the bank. Until you know how much the bank will lend you, you don’t want to waste your time looking at homes you may not be able to afford.
While getting pre-qualified by your lender is a step in the right direction, getting pre-approved is even better.
Pre-Qualified vs. Pre-Approved
What is mortgage pre-approval, and why is it so important?
When you pre-qualify for a loan, you are getting an estimate of what you might be able to borrow. Key word, “might.”
Pre-approval is as close as you can get to confirming your creditworthiness without having a purchase contract in place. The lender will then provide a letter (that is good for 90 days) stating that they will lend you the amount disclosed in the pre-approval letter.
Steps to Become Pre-Approved
To get pre-approved for a mortgage, there are items you will need to provide:
- Driver’s license & Social Security Number (The lender will need these items to access your credit report.)
- Proof of income (W-2 statements, tax returns, pay stubs and proof of any additional income.)
- Proof of assets (Bank statements, 401K or IRA statements, etc.)
- Good credit (The better your credit, the lower the interest. If your credit score is in the pits, you may want to consider pausing on purchasing a home until you can better your score.) Our blog, Improving Your Credit Score for Your Mortgage Rate, offers pointers for increasing your credit score before you apply for a loan.
- Employment verification (Lenders need to know that you have a stable income.)
Pre-Approval is Attractive to Sellers
So, why is a potential buyer’s pre-approval so attractive to sellers?
Think of it this way. Buying a home is a competition, and you are trying to win. To beat the competition, especially in a seller’s market, you have to pull out all the stops. When inventory is low and homes are moving quickly, buyers need to be able to present solid offers and move quickly.
A pre-approved buyer has already shown commitment to buying, which will result in an easier and faster sales process, which is greatly appealing to the seller.
So, what’s stopping you? If you’re interested in purchasing a home, get pre-approved ASAP!