When it comes to buying a home, it’s smart to get all of your ducks lined up in a row. Before you head out to do some house hunting, having a pre-approval for a mortgage puts you in the driver’s seat. First, it helps you focus in on homes that are realistically in your price range. Second, it gets the seller’s attention. Sellers will be way more interested in your offer than lookers who haven’t been approved for a mortgage yet. Sellers don’t want to waste time waiting for a prospective buyer to go through the process of getting approved. Having a pre-approval for a mortgage is an official stamp that you can afford the selling price. It’s also important to note that pre-qualification is not equal to a pre-approval. A pre-qualification is just an estimate of what you should be able to borrow, while a pre-approval guarantees that one is already approved. There’s a world of difference between the two, and savvy home sellers know it.
The mortgage process for a pre-approval entails a review of income documentation, credit and assets. It means that if none of those factors change, the buyer will be able to close on their property, as the pre-approval meets the lender’s requirements.
During the mortgage pre-approval process, home buyers will be requested to provide W-2 forms, copies of previous tax returns for two years and statements from investment and savings accounts. Home buyers should also be prepared to address and credit glitches and gaps in employment. Those home buyers who are self-employed should be prepared to provide business licenses and profit-and-loss statements. Home buyers can also expect the lender to check their credit rating and to verify employment. After all is said and done and the purchase offer has been accepted by the seller, the lender will finalize the approval, once the home has been appraised.
Pre-approval mortgage letters are valid for 60 to 90 days. In some cases, this time period may not be long enough, such as with new homes under construction, short sales, when repairs are needed before closing and when the seller wants a longer escrow. It’s best to forward the most recent documents to keep the pre-approval in force in these circumstances.
Today, most sellers and real estate agents expect mortgage pre-approvals. Some agents won’t even consider potential bidders without a pre-approval letter and won’t accept the quicker pre-qualification letter as a substitute. Without it, a real estate agent may usher you out the door with a handshake and brochure. All around, pre-approval letters for a mortgage put you high on the totem pole with both sellers and real estate agents.
Obtaining a pre-approval letter for a mortgage doesn’t take a lot of time. If you’re applying online, your approval may be instantaneous. Depending on bank bureaucracy, it may take up to 48 hours. With the short time it takes to get a pre-approval letter and the clout that comes along with it, it just makes sense to get one. After all, why lose that dream home just because you don’t have it?