If you plan to purchase a home, even before you get started, you should get a pre-approval for your mortgage because at some point, sellers are going to ask you for this. But before that, let’s get to know first the basics of pre-approved mortgage.
What is a pre-approval?
A pre-approval, in the real estate lingo, pertains to a preliminary commitment in writing from a lender stating that a borrower would qualify for a certain loan amount based on different factor’s set by the lender. A pre-approval holds much more weight that just a loan pre-qualification, which is only an estimate of the amount you can borrow.
Why should you get a pre-approval?
It’s important to get a pre-approval for several reasons:
- The most important reason why you need to get a pre-approval is that it helps you determine the amount you can spend on a home and the size of mortgage you can be able to obtain.
- It gives you an advantage during the time to bid on a property. In other words, you’re ahead in the competition.
- This helps ensure that you only look at houses that you can certainly afford based on your price range.
- Helps speed up the home buying process once you find the home you want to purchase.
- Most bank-owned homes require a pre-approval letter from the lender before they accept your offer letter.
What are the things you need to be approved for a mortgage?
- Proof of income. All borrowers need to prepare W-2 statements from the past two years, latest pay stubs showing income and year-to-date income, along with proof of any additional income.
- Proof of assets. You will need to show bank statements and investment account statements to show that you have funds necessary for the down payment, closing costs, and cash reserves.
- Good credit. A lot of home lenders usually provide the customers with excellent credit score of 740 or above with the lowest interest rates.
- Employment verification. A lender does not only check you proof of income, but will also call your employer to verify that you’re still employment by the company and to double check your income.
- Documentation. A lender will ask any identification like your driver’s license and your social security number to pull a credit report.
How do you get a pre-approval?
Applying for a home loan pre-approval is similar to the usual home loan application process. You will have to begin the process with talking to a few lenders to know which loan suits you best in your financial situation. Hence, you will need to show what you earn, what you own, and what you owe – these are the requirements mentioned above. Normally, the pre-approval process takes 24 to 48 hours to obtain a letter.
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