Buyer’s Guide to Mortgage Pre-Approval
Talking to a mortgage lender and getting a pre-approval letter is often the first step towards buying a home. However, it is important that you understand what your pre-approval letter can and cannot do for you. You should also be prepared to show your lender proof of income, assets, and other relevant banking information.
You will need to provide your financial details to receive pre-approval.
The first step towards getting pre-approved for a mortgage is to meet with the lender and discuss your financial history. The lender will need your social security number to pull your credit report. Your credit report will outline your current debts as well as any past delinquencies. While your credit score is not the only relevant factor, a clean credit report can go a long way towards securing a mortgage. If you plan to have a co-borrower on your loan, perhaps a spouse or a parent, the lender will need to pull their credit report as well.
If you do not get pre-approved at your first meeting, do not despair. Working to pay off debts and improve your credit score can go a long way towards meeting the qualifications for pre-approval. You can always try again in a few months after you get your other financial obligations in order.
A pre-approval letter can tell you how much home you can afford.
A pre-approval letter is the best way to narrow down your price range. By going through the pre-approval process, the lender will analyze your financial situation and give you a maximum amount that they feel comfortable lending you. This may or may not be the number that you already had in mind. Many people use mortgage calculators to estimate the size of the loan that they can comfortably afford.
If your pre-approved amount is higher than your target price range, then you know that the homes you have been looking at are well within your budget. If your target price range is higher than your pre-approval amount, you will need to reconsider how much home your family can actually afford.
Your pre-approval letter does not guarantee you a loan.
It is important to note that your pre-approval letter does not guarantee you a specific interest rate or a loan at all. Even after the pre-approval process is complete, the lender can still request additional documentation before approving the final loan. This documentation often includes verification of your assets as well as proof of your family’s income. It is common for lenders to request pay stubs and bank statements before the loan paperwork is completed.
Because of this, your pre-approval letter does not guarantee that the seller will accept your offer. One of the reasons an all-cash offer is so attractive is because, unlike an offer backed by a pre-approval letter, there is no chance that an all-cash offer will fall through at the last minute due to insufficient funding.
However, a pre-approval letter is not worthless. A seller is far more likely to accept an offer backed by a pre-approval letter than an offer without pre-approval from a reputable lender. To learn more about making a solid offer on a home, get in touch with Huntley Realty, email us at homes(at)huntleyrealty(dotted)com or call 847.669.4010.