The home buying process is an exciting time for individuals and families who are stepping into the next chapter of their lives. However, it also requires a lot of paperwork and technical knowledge that most homebuyers don’t have. Your Realtor® will be an invaluable resource in guiding you through this process, but there are also steps you can take before you look at houses to make it easier. One option you have is to get pre-approved for a mortgage. This will help you confidently put in offers and hasten the closing process. Keep reading to learn more about pre-approval and how to do it.
What Is Mortgage Pre-Approval?Pre-approval means a lender is ready to give you money once you are ready to buy a home. In this case, you don’t know what home you intend to buy yet, but you do know that you will buy one in the near future. Your lender will look at your current financial situation, your credit score, and your credit history and provide an amount for how much they are willing to give. A pre-approval can last up to 120 days, giving you enough time to engage with your real estate agent to find and buy a house. The main benefit of pre-approval is knowing that you will have a financial partner once you decide to buy a house. This way you won't lose your dream home because you couldn’t get financing. Getting pre-approved for a mortgage can also help you budget before you start looking for a home. You can learn how much house you can afford so that you say in an ideal range. This value peace of mind alone often makes the pre-approval process worth it.
How Do You Get Pre-Approved for a Mortgage?Pre-approval starts with a meeting with your financial lender, or whoever you expect will provide you with a loan for your mortgage. Many homebuyers often turn to their banks or credit unions for a mortgage because they can easily access and verify their financial documents. You will want to come prepared for this meeting and have your financial documents in order already, otherwise you will delay the approval process. As a general rule of thumb, there are five things you need in order to get pre-approved:
- Proof of income: You will need W-2 statements from the past two years, recent pay stubs, and other documents that prove your income like past tax returns.
- Proof of assets: These include bank statements and other investment statements that prove that you have enough cash on hand to cover the cost of a down payment, closing costs, and other home-buying expenses.
- Good credit: Most lenders expect you to have a credit score of 620 or above to buy a home, though some may require a score above 760 for certain loans.
- Employment verification: This goes along with your pay stubs. Your lender will likely call your employer and previous employer to verify that you work there (or did work there) to confirm that the documents are accurate.
- Miscellaneous documentation: You may need additional documents if you are self-employed or need a specific type of loan.