Mortgage pre-approval is your #1 home buying preparation tool

Before you shop for a home, unless you’re paying cash, get a mortgage pre-approval.

  • Pre-approval tells you what price range you can afford
  • Realtors and sellers won’t take you seriously without it
  • Your mortgage process will be smoother and faster

Those If you’ve read this far, we know you’re serious about buying a home, you can continue with this story or scroll to the bottom to get started.

Take me to the form!

Those advantages should be enough to convince you. But 42 percent of homebuyers go shopping for a home without mortgage pre-approval.

Tom and Linda’s story,

Suppose you ignore this advice and hit the virtual tours in a hot market. What if on day one you fall in love? That could be a problem because unless you’re paying cash, no one will take your offer. You might not even be allowed to view the property in person.

Just ask Tom and Linda, real home buyers who found out the hard way.

Tom and Linda jumped the gun and began their home pursuit by searching for properties online.

Once they found a few homes they liked, the couple contacted a real estate agent about seeing the properties. The agent asked if they had a mortgage pre-approval letter. Tom and Linda assured their agent that their credit and finances were impeccable, everything was in order, and there would be no problems.

Shop for money, then shop for houses:

Unfortunately, Tom and Linda were wrong. In fact, their offer never got off the ground because they couldn’t produce a pre-approval letter. In many of today’s hot sellers’ markets, a solid pre-approval letter is a must.

To add injury to insult, Tom and Linda discovered that their finances were not as “impeccable” as they’d believed because of their past.

Tom had recently made the switch from salaried employee to a self-employed business owner because he lost his job. That alone can make mortgage approval difficult because lenders almost always need to see at least two years of successful self-employment before they accept that income.

In addition, Tom, like many business owners, wrote off a sizable chunk of his gross (before tax) income — and that’s the income most mortgage programs use to determine what you can (or can’t) afford.

Tom and Linda were embarrassed and disheartened to find out that their purchasing power was only about 80 percent of what they’d expected. That’s why it’s smart to shop for money, then shop for houses.

Our step-by-step guide will direct you through the home buying process from start to finish, while you can read about it we highly suggest contacting a professional real estate agent first. Know what to expect, no matter where you are in your home buying journey.

In a hot seller’s market, inventory tends to be scarce. Getting pre-approved gives you a leg-up on your competition. A mortgage pre-approval allows you to make an offer with confidence and shows that you’re a serious buyer with the means to purchase a seller’s home.

Many real estate agents won’t even allow homebuyers to tour their listing if the buyers don’t show up with a pre-approval letter from a reputable mortgage lender.

What is a pre-approval letter?

A mortgage pre-approval letter from a lender assures you, sellers and real estate agents that you have the ability to a complete the purchase of any home that meets the lender’s guidelines.

Mortgage pre-approval shows you what you can afford to spend and what your monthly payment will look like.

Mortgage pre-approval is not merely pre-qualification. Many lenders issue “pre-qualification” letters after asking you about your income, debts and assets, and perhaps checking your credit.

Just a side note – Mortgage pre-qualifications are good (but pre-approvals are better)

While a pre-qualification letter is better than nothing (at least you put some thought into your prospective purchase), it can’t compete with an offer from a pre-approved buyer. To secure a mortgage pre-approval, you must complete a mortgage application and submit all required documents. These can include (but are not limited to):

  • Pay stubs and W-2s (typically two years)
  • Tax returns (typically two years if self-employed or you earn commissions or bonuses)
  • Bank, retirement and investment account statements (two to 12 months, depending on loan)
  • Financial statements (if self-employed)
  • Letters of explanation for credit blemishes
  • Divorce decrees, if you pay or receive spousal or child support

Often, one document might trigger a request for others. For instance, a bank statement showing 15 bounced checks in a single month might cause an underwriter to question your financial management skills. It’s best to resolve these glitches before home shopping.

  • You can get a pre-approval letter and shop for rates later
  • You don’t have to go with the lender from which you receive your pre-approval letter.

Get your pre-approval from any reputable lender, and get an accepted offer on a house.

 

A quick message from Adam about Pre-Approval

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