If you’re preparing to buy a home, one of the most important first steps is getting pre-approved for a mortgage. Not only does a pre-approval provide you with a clear understanding of your budget, but it also signals to sellers that you’re a serious buyer. Here’s a step-by-step guide on what to expect during the mortgage pre-approval process, along with tips to make it as smooth as possible.
What is Mortgage Pre-Approval?
Mortgage pre-approval is a process where a lender evaluates your financial situation and determines how much they are willing to lend you to buy a home. Unlike pre-qualification (which results in a less formal estimate), pre-approval involves a more in-depth review of your finances and typically requires submitting documentation.
We take our applicants through this approval process to provide them with reliable numbers that can help guide through the home search process.
The Process of Pre-Approval
Getting pre-approved is a process of multiple steps.
Gather Your Financial Documents
To apply for pre-approval, you’ll need to compile key financial documents, including:
- Proof of Income: Recent pay stubs, W-2 forms, or tax returns if you’re self-employed.
- Proof of Assets: Bank statements showing savings, investments, and other assets.
- Debt Information: Statements for credit cards, student loans, car loans, or other liabilities.
- Identification: A government-issued ID and your Social Security number.
Gathering them all in one place will make it easier to provide all the documents at once.
Check Your Credit Score
Your credit score plays a major role in determining the loan amount and interest rate you’re offered. We all complete a credit check as part of the pre-approval process, but you should also check your credit report in advance to ensure accuracy and address any discrepancies.
Submit Your Application
Once you’ve checked your credit and gathered your documents, you’re ready to submit a formal application. This step requires you to provide personal and financial details, such as:
- Employment history
- Monthly expenses
- Desired loan amount and property type
If you have questions about any part of this process, we’re here to answer them. We specialize in finding creative solutions to work for a diverse range of buyers, and we want to help guide you through the process so you can move confidently through it.
Undergo a Credit Check
As part of the process, we will perform a hard inquiry on your credit report. This inquiry may slightly impact your credit score, but it’s a necessary step for pre-approval. Don’t worry, this won’t cause a long term negative impact.
Wait for the Decision
We will review your financial information, credit report, and application. Based on this analysis, our underwriters will determine how much you qualify to borrow and then we can provide you with a pre-approval letter. This letter will specify:
- The maximum loan amount
- The estimated interest rate
- Loan terms
Common Pre-Approval Missteps
Financial decisions that might otherwise be no big deal can create issues in the pre-approval process. Watch out for these common missteps:
- Taking on New Debt: Avoid applying for new credit or making large purchases (like a car) during the pre-approval process, as it can negatively impact your approval.
- Changing Jobs: Lenders like stability, so avoid switching jobs or making major career moves if possible.
- Not Being Honest About Finances: Provide accurate information on your application to prevent surprises during underwriting.
What Happens Next?
After getting your pre-approval letter, you’ll know what you can do moving forward in your house hunting process. With your pre-approval in hand, you’ll have a clear budget to guide your home search.
Ready to apply for a mortgage? We’re here to help. Contact us any time with your questions!
