Buyer’s Tip #1

Pre-approval

A pre-approval letter is the first step in the home buying process. It documents exactly how much you can borrow to purchase your property. This is important information to know before starting your home search. It also means the issuing lender is confident that you can make the necessary down payment and all future mortgage payments. Arguably one of the most important steps in the home buying process, here is what you need to know:

When?

Getting pre-approved for a loan should happen BEFORE you start looking for a home. Especially in today’s Seller’s market, this gives you a major advantage when making an offer on the house. Also, make sure it is NOT a prequalification letter. These are more informal documents, where the lender does a basic interview about assets, income, and expenses to assess a ballpark purchase price range.  They don’t bring you any closer to securing a mortgage.

Why?

The pre-approval process helps determine your purchasing power. This will eliminate any disappointment when searching for the right home because you will know exactly which price range you are comfortable with. Additionally, the pre-approval process can take some time, and sellers will almost always ask for it before accepting an offer. Procuring one as early as possible makes you look like a serious buyer and will ensure that your offer doesn’t get bypassed for one that already has all the necessary paperwork in play. A pre-approval letter on a mortgage lasts 60-90 days depending on the lender.

How?

The process of getting preapproved is quite simple. All you must do is provide your lender with the documentation they require, including:

1. Income Information: Be prepared to supply your loan representative with pay stubs, tax returns, and W-2s from the previous two years. You will also need documents that show additional sources of income. These include a second job, overtime, commissions and bonuses, interest and dividend income, Social Security payments, VA and retirement benefits, alimony or child support.
2. Asset Information: Your lender will want to see information about any of the other assets you have, aside from your income. This documentation can include bank account statements as well as information about investments you’ve made. If a family member or friend is giving you money, you’ll also want to bring this information (including a gift letter, which shows the money is not a loan).
3. Personal Information: You’ll need to bring a valid form of identification such as a driver’s license or passport, and you will need to provide your Social Security number for a credit check.

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 completed within a day, or even an hour. It all depends on the underwriters and the lender’s pre-approval process.

Who?

You can shop around with multiple lending institutions within forty-five days of getting your first pre-approval letter. Lenders will know that you’re trying to buy a home. Your credit report will only show a single hard inquiry so long as all your lenders do their research during those forty-five days. So, it is important to find the right lender for you. The best lender will walk you through the loan process, review all loans available to you and discuss their pros and cons. They should make you feel informed and comfortable through the entire process. Also, be sure not to make any large purchases (like cars, boats, etc.) after starting the pre-approval process as this may affect your final mortgage loan.

Not sure where to start, what loans are right for you, or which lenders to go to first? Contact us, we’re here to help.