As a Real Estate Agent at Midge & Co, I have had many clients say to me; “All I want to do is look at some homes to see what’s available out there. Why do I need a pre-approval”? Although it is our pleasure to sit down with each individual client & explain the pre-approvals importance. We felt explaining this important piece of the home buying process, here on our blog, could help inquiring minds everywhere! #KnowledgeIsPower
What is mortgage pre-approval?
Mortgage pre-approval is the first step in the process of getting the loan to purchase your new home!
This is when lenders dig deep into your financials, checking out your income, debts, credit score, and other factors that determine whether or not they to give you a home loan—and how much money they are comfortable loaning based on your financial ability to pay. Once approved, you know your price range allowance and can narrow your search accordingly.
Why is pre-approval so important?
Many sellers will only accept an offer from a pre-approved buyer and are more willing to negotiate with people who have proof that they can obtain financing. This is because without the pre-approval there’s no guarantee that the deal will go through and can be a potentially costly waste of time. In addition, getting pre-approved ahead of time shortens the time frame of obtaining financing before closing — this way you’re ready to proceed with finalizing the mortgage once you’ve found the home you want to purchase.
Pre-approval vs. Pre-qualification: What’s the difference?
Mortgage pre-qualification entails a basic overview of a borrower’s ability to get a loan. You provide a mortgage lender with information—about your income, assets, debts, and credit—but you don’t need to produce any paperwork to back it up. As such, pre-qualification is relatively easy and can be a fast way to get a ballpark figure of what you can afford. But it’s by no means a guarantee that you’ll actually get approved for the loan when you go to buy a home.
Getting pre-approved, in contrast, is a more in-depth process that involves a lender running a full credit analysis and verifying your income and assets. A preliminary review of your financial portfolio is performed by an underwriter and if all goes well, you are given a written commitment for financing up to a certain loan amount; this commitment is good for up to 90 or 120 days.
What documentation is needed?
Although all financial institutions vary in their required documents, the following are the most requested:
• Pay stubs from the past 30 days showing your year-to-date income
• Two years of federal tax returns
• Two years of W-2 forms from your employer
• 60 days or a quarterly statement of all of your asset accounts, which include your checking and savings, as well as any investment accounts such as CDs, IRAs, and other stocks or bonds
• Any other current real estate holdings
• Residential history for the past two years, including landlord contact information if you rented
• Proof of funds for a down payment. If the cash is a gift from your parents, you need to provide a letter that clearly states that the money is a gift and not a loan.
If you are in the market to purchase a home or know someone looking to discuss financing opportunities & pre-approvals, Midge & Co has options listed on our Lenders page. As always feel free to contact us for all your #realestate needs!
Take a breath, your dream home is out there & obtaining financing isn’t as scary as it seems!
Happy House Hunting!
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