What does the pre-approval process for a mortgage look like?
A mortgage pre-approval is what separates home browsers from home buyers. It signals that you’re serious about buying a home and ready to take the next steps in the process.
If you watch house hunting shows on TV, it seems simple to walk into a bank or mortgage broker and receive a pre-approval letter. Like a lot of things, though, the process in real life is a little more complicated than how it looks on TV.
Here’s what you need to know about the mortgage pre-approval process:
Choosing a lender or lenders
The first step in the pre-approval process is to select a lender to issue the pre-approval letter. Shop around for lenders offering the best rates, or work with a mortgage broker to choose one.
Just like getting a second opinion from a doctor, having more than one pre-approval is sometimes beneficial. You might find that one lender qualifies you for a higher amount than another, or that one is easier to work with.
Again, a mortgage broker can help with this part of the process by selecting the lender for you and working as an intermediary in the pre-approval process.
Submitting the application
The goal of the pre-approval is to provide an accurate estimate of your financial picture and how much you can realistically spend on a home. To do that, lenders need to know how much you make, what your expenses are, and how much debt you already have.
Be prepared to provide the following as part of the pre-approval process:
- Pay stubs
- Bank account statements
- Federal tax returns from the past two years
- Statements from 401K, IRA, and other investment accounts if applicable
- A gift letter, if you’re using funds from a relative to help cover the down payment
The lender will also run your credit report. We recommend pulling a report for yourself a few months before pre-approval so you can correct any errors you find or figure out how to boost your credit score if needed.
Obtaining the letter
Once the pre-approval screening is complete, you’ll receive a letter stating how much that lender would be willing to give you to buy a home. Think of it as the maximum you should spend on a home and try to stay under the listed amount if possible.
Most mortgage pre-approvals expire within 60 or 90 days, so you might need to go through the process again if you do not apply for a mortgage within that time frame.
by Author, March. 20, 2019