Pre-approval means the lender is confident you have the ability to make the necessary down payment and an income that can sufficiently cover your future mortgage payments. At this stage, only one concern remains: the lender needs to make certain the property’s value offers sufficient collateral in relation to the loan amount. In other words, the home must be appraised for an amount more than or equal to the purchase price.
Before trying to get pre-approved for a home loan, check your credit reports and credit score. By taking this first step early on, you’ll have a better idea of what kinds of loans and interest rates you may qualify for, and you’ll have time to clear up any errors or problems you find on your credit reports before you start shopping for homes.
Preapproval is the process of determining how much money you can borrow to buy a home. To pre-approve you, lenders look at your income, assets and credit to determine what loans you may be able to get approved for, how much you can borrow, and what your interest rate might be.
When you get pre-approved, you usually get a preapproval letter. There are a few reasons the preapproval letter is important. First, real estate agents typically want to see your pre-approval letter before they show you houses. This ensures they don’t waste time showing you homes outside your budget. Second, the preapproval letter is something you can share with the home’s seller when you make an offer. It shows that you won’t have problems getting financed for the amount you’re offering.
Pre-approval and pre-qualification are both ways of understanding how much you’ll be able to get approved for. There are some slight differences between these two processes, though some lenders use these terms interchangeably.
A prequalification is like a preapproval, but it may not be as accurate. With a prequalification, you won’t have to provide as much information about your finances, and your lender won’t pull your credit.
Without your credit report, your lender can only give you estimates – which means the approval amount, loan program and interest rate might change slightly as the lender gets more information. Because a prequalification is just an initial review of your finances, you usually don’t need to supply documentation (like bank statements and pay stubs) during this stage.
Preapprovals are a bit more in-depth than prequalifications. When you get preapproved, you may be required to provide information or documents like bank statements and pay stubs to prove your income and the funds you’re using to get the loan. A preapproval will also require a hard credit check so your lender can get your credit score and see how much other debt you have.
A preapproval is helpful when you’re shopping for a home, but you’ll need to get a full approval once you find your home. For your lender, this process includes making sure the property details check out.
Here are a few property details your lender will need to approve:
The process of getting pre-approved for a mortgage is actually quite simple. All you have to do is provide your lender with the documentation they require, including:
Your lender will pull your credit information on their own, so you don’t have to worry about bringing it with you.
Beyond this, the ball is in the underwriter’s court. Pre-approval typically takes two weeks to a month, but with automated underwriters it can sometimes be complete within a day, or even an hour. It all depends on the underwriters and the lender’s pre-approval process.
Within forty-five days, you can attempt to get pre-approved from multiple institutions, because the lenders will know that you’re only trying to buy one home.
Your credit report will only show a single hard inquiry so long as all of your lenders do their research during those forty-five days.