SUMMARY
Obtaining a mortgage-preapproval is crucial for prospective homebuyers. Learn the four simple steps of the mortgage pre-approval process, along with answers to your homebuying questions.
Buying or Building a Home
Mortgage Pre-Approval: Everything You Need to Know
6 minute read time
Are you considering buying a home? If so, one of the first steps you should take is getting pre-approved for a mortgage. Mortgage pre-approval is a crucial part of the homebuying process, as it gives you a clear understanding of your budget and strengthens your position as a serious buyer in the eyes of sellers.
In this comprehensive guide, I’ll walk you through everything you need to be aware of during the mortgage pre-approval process, from its benefits and requirements to the application process and tips for a successful approval. Whether you’re a first-time homebuyer or looking to buy your next home, this article will provide you with the knowledge and confidence to navigate the pre-approval process with ease.
What is a mortgage pre-approval and why do I need one?
A mortgage pre-approval is a formal application made by a prospective home buyer to a lender. It provides assurance to the buyer that they'll have the necessary financing in place when they find their ideal home. While the pre-approval process is similar to that of someone who has already made an offer and applied for approval, obtaining a pre-approval offers a distinct advantage by giving buyers an early competitive edge in their homebuying journey.
Pre-approvals are incredibly important, particularly in a highly competitive seller’s market, like the one we have experienced in recent years. Apart from providing a competitive advantage, there are several benefits to obtaining pre-approval. It offers buyers a realistic understanding of what they can afford, allowing them to make informed decisions during the homebuying process and effectively plan their finances. Additionally, pre-approvals demonstrate to REALTOR® and sellers that the buyer has the financial means to afford the desired property.
How to Get a Mortgage Pre-Approval
1. Contact a mortgage loan officer
First and foremost, you’ll want to reach out and schedule a meeting with a loan officer. This meeting allows you to explore and discuss the various financing options available. You will also learn more about our pre-approval process and what necessary documentation you will provide to your loan officer.
2. Apply online
After your conversation, you’ll fill out an online loan application. The application itself should only take 15-30 minutes to complete and consists of basic questions about your financial situation. These questions include providing your last two years’ addresses and employers and basic information about your income, assets and liabilities.
3. Provide documentation to your loan officer
After your application has been reviewed by a loan officer, they’ll request specific documentation to gain a comprehensive understanding of your financial situation. This information will be submitted to a loan underwriter for formal approval of your financing. You can provide these documents to your loan officer through secure email links or by uploading them through an online portal. Depending on your unique financial circumstances, here are some examples of the documents you may be required to provide:
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- Pay stubs
- Social security benefits
- Pensions
- Retirement income
- Cash assets
- Tax returns
- Proof of additional income
- Bank statements
- Investment statements
- Paid-off loans
Reminder: If your credit is locked or frozen, it's crucial to contact the credit agencies, like Experian, Equifax and Transunion, so your loan officer can pull your credit report.
4. Obtain your pre-approval and start your search
Once your financing has been approved by an underwriter, you will receive a formal pre-approval letter. You can share this letter with your REALTOR® as you begin your search for a new home. With your pre-approval in hand, you can confidently make offers on homes that align with your preferences and budget, enabling you to act quickly when you find your ideal home.
Mortgage Approval Q&A
What’s the difference between pre-approval and pre-qualification?
While both mortgage pre-approval and pre-qualification both provide you an answer to how much house you can afford, they differ in terms of validity and requirements. Here’s a brief comparison between the two:
| Mortgage Pre-Approval |
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Mortgage Pre-Qualification |
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Long story short, mortgage pre-approvals are more valuable than pre-qualifications. Unlike pre-qualifications, pre-approvals consider your entire financial picture and offer an accurate, rather than estimated, borrowing amount. Additionally, pre-approvals give you a stronger competitive advantage, which is particularly valuable in highly sought-after markets.
What factors impact pre-approval?
Several factors come into play when it comes to obtaining pre-approval for a mortgage. These factors include your credit score, the documentation you provide, your sources of income and your debt-to-income ratio (DTI). Your DTI ratio is a crucial metric that compares your monthly debt payments to your income. This ratio provides mortgage lenders with insights into your ability to manage your debt effectively. If you want to calculate your own DTI, add up all your monthly debt payments and divide them by your gross monthly income, before taxes.
Before meeting with a mortgage loan officer, we advise that you assess the health of your credit by obtaining a free credit report on annualcreditreport.com. Review to ensure that all information is up to date, while also identifying any unfamiliar debts that may require attention.
How long does it take to get pre-approval?
The timeline for pre-approval is generally quite quick. Depending on how many required documents you submit, the process can range from receiving a response within the same day or up to three days.
How long do pre-approvals last?
Pre-approvals typically last for 120 days. However, it’s important to note you will need to find a home and complete the closing process within this timeframe. If your homebuying process extends beyond 120 days, your loan officer will request another credit report and you may need to provide updated documentation.
Should I get multiple pre-approvals from different lenders?
No, we don't recommend seeking multiple mortgage pre-approvals as each lender will need to hard pull your credit, which can slightly reduce your credit score. It’s important to keep a healthy credit score, especially during the homebuying process. So, we suggest applying for pre-approval with just one lender to avoid unnecessary dips in your credit score.
What are the next steps after getting pre-approved?
After you’re pre-approved, you’re ready to begin working with your REALTOR® and officially start house hunting. A pre-approval, particularly from a reputable mortgage lender, provides your REALTOR® reassurance you have the financial means to afford the properties that you're considering.
Best of luck in your search! Connect with one of our experienced advisors to start your pre-approval process today.
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