Getting Pre-Approved for a Mortgage

Pre-approval is the process of getting approved for a mortgage without having chosen an actual property. Unlike pre-qualification, it is a formal process based on documented and verified information, and involves your assets, employment history, liabilities and credit score. Having a pre-approval allows you to get a final loan commitment quickly when you find the right property, and it will also help substantially in negotiating with a seller, as it tells them that your offer is already approved and that you are ready to move forward with the purchase.

Another advantage of getting pre-approved for a home mortgage loan is that it will give you a firm idea of how much you can borrow, so that you can set a maximum price for your new home. This will prevent wasted hours looking at homes, only to find out afterwards that you cannot afford the mortgage.

In addition, realtors will be much more willing to spend time helping you in your property search if they know that you have been pre-approved for a loan. Some may even insist you apply for and receive a pre approval before starting to look for homes.

As the lender will look closely at your credit report, it is a good idea to get a copy of before starting the pre-approval process. This way, you can find and correct any problems before the mortgage loan process begins. Any inaccurate information or mistakes on your credit report could mean that you are charged a higher interest rate than necessary, or could even mean that you will be turned down for the loan.

It is not a good idea to make any major purchases before you apply for pre-approval, as this may adversely affect your credit report and may mean that you have to pay higher interest on your loan. Save the shopping for after you move into your new home!

Getting Pre-Approval

During the pre-approval process, you will speak with a mortgage lender about your financial situation, in addition to any special circumstances or concerns you may have.

The lender will need to verify all income information provided by you, so you will need to bring your pay stubs, tax returns and other information to support the income you are claiming. The mortgage lender will want to see bank and pay stubs from the last three months and W-2 forms for the past two years.

They will use this financial information to obtain approval up to a specific loan amount. The lender will provide you with information about the monthly payments on the mortgage loan and any closing cost information. They will also review the mortgage loan application with you, asking questions related to your current residence, marital status, employment status, salary, and other relevant information. The loan application will also contain a number of disclosures that you'll be required to sign.

After you have reviewed and signed the home mortgage loan application, the mortgage lender will submit the paperwork through the "Automated Underwriting" process, where an answer is typically received within just a few minutes of submission. Once the paperwork is approved, you will be issued a pre-approval letter that outlines the terms of the mortgage approval.