Whether you are buying your first home or you are a seasoned real estate investor, the process of purchasing real estate can be a stressful time filled with lots of legalese and paperwork, especially as banks and mortgage lenders have instituted tighter lending standards. The best way to navigate your way through the real estate closing process is to be as prepared as possible and to know as much as you can about each step of buying a home. For most smart homebuyers, this starts with the pre-approval process.
What is the Pre-Approval Process?
The pre-approval process should be the first step you take when you begin to consider buying a new home. Essentially, this step involves getting a bank or mortgage lender to give you a preliminary approval for a mortgage loan. This is different from pre-qualifying, which is a less formal process.
When you go through the pre-approval process, you submit your personal information and financial information to a mortgage lender that you are planning to get a final mortgage from. Before you do this, you may want to speak to several mortgage brokers or lenders to get some idea of the different terms that they are offering and the different types of loans available. For most buyers, a 30-year conventional mortgage is the best option for a loan, but you do want to find a lender who can offer you the specific type of financing you are looking for.
Once you have found a lender you want to work with, you will be asked to submit many of the same forms you will need to ultimately get final approval for a mortgage. These forms and documents will include your tax returns and/or your pay stubs, a list of your assets and liabilities, and other information that shows your current financial picture. You will also provide your social security number so the lender can check your credit score.
Once you have submitted all of your paperwork and documents, the mortgage lender will review your information and determine if you are qualified to borrow and how much you are qualified to borrow. Typically, at this stage, the pre-qualification is done simply by looking at your income, your debt and your credit score. Verification of your income and other more in depth investigation of your finances won’t occur until the underwriters approve your final loan. If you provide accurate information, however, typically you will be able to qualify for the loan that you pre-qualified for.
Why Get Pre-Approved?
Preapproval should be the first step in the mortgage process for several reasons. First and foremost, it ensures you don’t waste your time looking at houses you cannot afford. Second, having pre-approval shows your real estate agent as well as any potential sellers that you are actually a serious buyer and able to qualify for homes you are looking at.
Most sellers require some type of pre-approval as a condition of accepting an offer, and if you have pre-approval before you begin looking, you will both save time and have the edge over other buyers who might not be able to show their ability to go through with the purchase transaction.