Getting pre-approved for a loan is the important first step for people who are truly serious about buying a home.
In this post, we’ll talk about what a mortgage pre-approval is, why it’s so important, and how you can make the whole process easier.
What does getting pre-approved mean?
Getting pre-approved is a process wherein a lender examines your creditworthiness and determines the mortgage amount that you qualify for.
When you apply to get pre-approved, the lender will take a look at your credit and check the financial documents and information that they will ask you to provide. Based on this assessment, they will then decide on the maximum amount that they can offer you. This will be detailed in the pre-approval letter that they will send.
Why would you want to get pre-approved?
In today’s market, especially in sought-after locations like San Diego, you can’t just walk up to a seller and expect them to rely on your word alone that you’re a serious buyer with the means to purchase their home.
They’re going to want poof. Seller’s and seller’s agents will only want to entertain offers from buyers who can show that they have financing for the purchase. You don’t want to lose out to another buyer just because they can show that they’ve been pre-approved for a mortgage and you can’t.
How to get pre-approved
Getting pre-approved is a relatively simple process, though one that does involve a great deal of paperwork. However, if your credit isn’t that great or you want to improve your chances of getting pre-approved for a larger amount, then you may want to get some pre-pre-approval prep work done.
- Before you apply:
- Review and fix errors on your credit report.
Lenders are going to be scrutinizing your credit report and they will use the information in it to calculate your credit score. So it’s definitely a good idea to get a copy of it and check it for errors.
Federal law mandates that you can receive a free copy of your credit report from Equifax, Experian, and TransUnion once every 12 months. Go to AnnualCreditReport.com to request your free credit reports. Reviewing this early gives you more time to find and fix any errors and to potentially improve your credit score.
- Improve your credit score.
If you’re still months away from making a purchase, you still have time to take additional steps to boost your credit score. Things you can do include: reducing your debt, paying bills on time, and keeping your credit cards’ balances low.
- When you apply, you will need to prepare your financial documents.
Different lenders will have different document requirements, but they don’t tend to vary by that much.
These documents often include, but aren’t limited to:
- Income information
- Pay stubs
- 2 years of tax returns
- 2 years of W-2s
- Proof of other income sources such as:
– Secondary job, if any
– Overtime and bonuses
– Retirement benefits
– VA benefits
– Interest and/or dividend income
– Child support
Additionally, the lender will likely call your employer to verify and check the status of your employment.
- Asset information
- Bank statements
- Investment account statements
- Cash reserves
- Other assets including notarized gift letters from friends (if any) to prove they aren’t loans
- Personal information
- IDs (passport, driver’s license, etc.)
- Social Security number
What happens after you’ve applied?
Pre-approvals take around two to four weeks to process.
If you get pre-approved, you’ll receive a letter containing a conditional commitment that shows the exact loan amount you’re cleared to have.