Uncover What a Mortgage Preapproval is in the World of Real Estate
Though not quite as confusing as college-level chemistry, buying a house can be tricky when you are drowning in unfamiliar real estate terms, particularly mortgage preapproval. Lenders claim if you are not preapproved for a mortgage, you won’t stand a chance of purchasing a home off the market. What does mortgage pre-approval mean?
In this article, we will uncover what preapproval is, the process, and what it means in the world of real estate.
What is a Mortgage Preapproval?
A mortgage preapproval is not the golden ticket to getting a loan on a home that you’d like to purchase. A mortgage pre-approval will only mean a loan officer has looked over all of your finances, including:
- Income
- Debt
- Assets
- Credit History
What is so great about a mortgage preapproval? Simply put, once a lender has preapproved you for a mortgage, you will receive a letter to give to a seller of a home you are interested in buying. This letter will show sellers that you have not only begun working with a lender but are a serious buyer. It will let sellers know that you are a legit buyer who can afford their house and you aren’t wasting their time window-shopping.
Why is a Mortgage Preapproval Wanted?
A pre-approval letter won’t guarantee you will get a mortgage, but being preapproved will come with advantages. Below are three main reasons why having a preapproval can be desirable:
- You Will Have Confidence in Your Search. When you know how much mortgage you can comfortably afford, you can look for houses within your budget. That way, you won’t have to deal with the heartbreak of loving a house that you can’t afford.
- You Will Be on the Fast Track to Close. Most of your information is in the lender’s system; a mortgage preapproval will accelerate the loan process when you make an offer.
- Your Credibility as a Home Buyer will be Established. A mortgage pre-approval will show home sellers that all of your finances are in check, you are serious about buying a house, and you are likely to qualify for a loan if they decide to sell your home.
What Do You Need for a Mortgage Preapproval?
The process of mortgage preapproval is a rigorous one; you will need to give your lender tons of documents. Below are a few of the following a lender might request from you:
Identification
- Driver’s License
- Social Security Card or Number
- A copy of the front or back of a green card if you are not a U.S. Citizen
- Credit History
- Employment Verification
Income
- Paystubs over the last 30 days.
- W-2 forms from the last two years.
- Proof of additional income.
- Last two years of personal federal income tax returns.
Assets
- Bank statements that show you can cover the downpayment and closing costs of a house.
- If you are getting help with a down payment, a gift letter will be required stating that the money is a gift and not a loan.
- Recent quarterly statements for asset accounts, including 401(k), IRA, and brokerage accounts.
Bottom Line
Getting a preapproval doesn’t mean that you will get qualified for a loan, and the mortgage can be denied. However, before going in for a preapproval, ensuring that you are financially squared away is key to not only getting preapproved but also acquiring the loan that you need to get the home of your dreams. It is crucial to avoid financial moves after preapproval that will make you seem like a risk to lenders. Some things to keep in mind to not do include applying for new credit, making large purchases, or missing out on loans and credit card payments. Get pre-approved today to start the journey of finding and settling in the home of your dreams.