So, you’re ready to buy a home. Great! But you’re not really ready until you’ve been pre-approved for a mortgage. Getting pre-approved sets you up for success by giving you a firm idea of what you can afford, and by indicating to sellers just how serious you are. Let’s take a look at what exactly goes into a pre-approval, how it can give you an edge over other buyers, and what you’ll need to do to make it happen.
What is a mortgage pre-approval?
A mortgage pre-approval is a type of approval that shows a lender has verified credit, employment, income and assets enough to give you an approval for your new home loan. They’ve determined you’re eligible for a mortgage at a certain rate, up to a certain amount, to be paid in a certain monthly sum over a certain number of years. It’s essentially a stamp of (pre)approval from an unbiased third party — and it could go a long way toward realizing your homeownership dreams.
However! A mortgage pre-approval is not a guarantee that you’ll get that loan. It is not a guarantee that you can afford a house. And it’s certainly not a one-way ticket to achieving your goals. Even after you get pre-approved, you’ll have to go and officially apply for a mortgage. Still, it’s helpful to think of your mortgage pre-approval letter as a helpful tool on your journey.
How to get pre-approved for a mortgage
Generally speaking, getting pre-approved for a mortgage is a pretty quick and easy process — just talk to your lender, fill out an application, supply the necessary supporting documentation, and let them do the rest. This documentation typically includes paystubs and tax forms from your employer, personal identification documents, and asset documentation (i.e. checking and savings accounts, etc.).
So what’s the difference between pre-qualification and pre-approval?
Mortgage pre-qualification is not a synonym for mortgage pre-approval as there are definite differences between the two. Pre-qualification is more of a preliminary credit check based on unverified information supplied by the you. It’s a basic number crunch that can give you the green light to move on. It’s a much quicker process and is helpful to tee up your pre-approval.
Mortgage pre-approval is a more in-depth review of your finances that are verified by the lender, taking into account everything from employment history to debt-to-income ratio and more. Due to the additional review required, it may take longer than a pre-qualification but offers greater rewards, too. There are advantages to both processes, and they work in tandem to make sure your finances are good to go.
So, if we’re thinking about pre-qualification vs. pre-approval, it can be helpful to picture it as a chain of events. Getting pre-qualified can help you get pre-approved. Getting pre-approved can help you get approved. Getting approved will get you into your new home.
Benefits of mortgage pre-approval
Now we know what pre-approval is and how to make it happen. But let’s dive a little deeper into the reasons why. No matter who you ask, getting pre-approved for a mortgage is generally considered a good move for homebuyers.
- Mortgage pre-approval can help you:
- Set parameters on your house-hunting journey
- Get an accurate view of your monthly payments
- Signal seriousness to sellers
- Stand out from other buyers
- Accelerate the approval process
- Understand if there are areas of your finances that need improvement
- Negotiate the purchase price
- Kickstart an important relationship with your loan advisor/officer
Considering all of these benefits and advantages, it’s clear that mortgage pre-approval should definitely be part of your homebuying experience.
When should you get pre-approved for a mortgage?
Ideally, you should get pre-approved before starting your home search, but there isn’t a hard and fast rule here. Again, everyone’s situation will be totally unique. So the exact timing is up to you. Just know that you want to get your letter of pre-approval before you start looking in earnest, but not too far in advance because they do have a time limit.
Hold on — how long do home loan pre-approvals last?
Don’t worry, you’ll have plenty of time to visit all of your houses! Most home mortgage pre-approvals are valid up to between 60 and 90 days. That gives you time to hunt to your perfect home without having to reapply.
But after that 60-90-day period, you will have to start the whole process over again, which could be a pain — and will have a temporary effect on your credit score since they’ll have to run a hard inquiry again. Not the end of the world, but not ideal. That’s why it’s important to move forward with pre-approval only if you’re serious about buying a home.
Why get pre-approved for a mortgage?
As we hope you’ve learned from this article, you should get pre-approved for a mortgage before starting your homebuying journey. Getting pre-approved will equip you with the knowledge to make a good decision, the confidence to stand out from the crowd, and the ease of moving forward with your chosen mortgage lender.