How important is it to get pre-approved for a home loan? The outcome of getting pre-approved is receiving a pre-approval letter. This letter is the golden ticket that allows you to be seriously considered by a seller to purchase their home. Without one, your chances of winning the bid on a home with multiple offers is slim to none. Therefore, it’s good to know the process of how to get pre-approved for a home loan and other answers to commonly asked questions about mortgage pre-approval.
Why Get Pre-Approved for a Home Loan? 6 Reasons
- It is important to get pre-approved for a home loan because you want a good understanding of how much home you can afford to purchase.
- Helps narrow down your search to homes you can afford and confidently enter an offer to the seller.
- Helps identify any potential issues before you enter a signed purchase agreement for a new home.
- Gives you a competitive advantage over any home buyer who is not pre-approved.
- Pre-approval tells the seller you’re already working with a lender, and the lender has reviewed your financial history. This gives the seller more confidence in your offer due to less risk of the loan not getting approved and the purchase falling through.
- Pre-approval can also speed up the closing process due to much of the financial information having been collected and evaluated by the lender.
What is a Mortgage Pre-Approval?
Getting pre-approved for a home loan is the initial process of the mortgage industry that qualifies a potential home buyer for a mortgage. When a home buyer is pre-approved that means a lender has agreed to let them borrow up to a particular amount for a home purchase (pending final underwriting approval). The outcome is a pre-approval letter that can be submitted to a seller to reinforce a proposed purchase offer.
What is a Mortgage Pre-Approval Letter?
When your loan application is preapproved, the lender will issue a mortgage pre-approval letter. The mortgage pre-approval letter will outline the terms of the offer typically including:
- Loan type
- Maximum allowable purchase price
- Down payment percentage
- Any applicable lending fees
- Interest rate the lender has tentatively agreed to extend you
This letter will accompany any home purchase offer you submit to a seller to reinforce your offer, and show the seller you are approved to receive the financing required to purchase the home for the offered price.
Is Pre-Qualified the Same as Pre-Approved?
The short answer to whether pre-qualified is the same as pre-approved is, not really, and here’s why. Yes, some people will use them interchangeably. And yes, they both provide a preliminary dollar estimate a borrower may qualify to receive toward a purchase.
However, pre-approval is a stronger, more reliable estimate. To get pre-approved for a home loan requires a deeper dive into your finances. The preapproval process typically includes pulling credit reports, credit scores, bank statements, investments and other financial documentation to determine an approved loan estimate. This process will likely uncover any potential issues you may not be aware of and that’s a good thing to learn before attempting to borrow a large amount of money.
Pre-qualification is not as thorough because it commonly relies on the assembly of self-reported information. The prequalification process typically does not include pulling your credit report or reviewing financial documents. The lender will collect some basic financial information to determine how much you may borrow to purchase a home. The lender will provide you with a prequalification letter and this will show real estate agents and sellers you’re working with a lender. But, the prequalification letter is less valuable than a pre-approval letter because a lender has not yet verified your financial information.
In the current market if you’re serious about buying a home you will likely need a pre-approval letter to be considered a potential buyer that a seller would want to work with.
When Should I Get Preapproved for a Mortgage?
Short answer, before you begin looking at homes. Know what you can spend before you start looking at homes. Because when you start looking at homes, you will find one you like. That’s when you’ll want to jump on it with an offer. To submit an offer, and have a good chance of winning the bid in a competitive market, you will likely need a pre-approval letter from your lender. Do your due diligence and get pre-approved for a home loan first so you do not miss out on that house.
That said, do not get preapproved too far in advance. Most pre-approvals are valid for 90-120 days (some can be shorter so make sure you know how much time you’re given). So, do not get pre-approved until you are serious about house shopping.
What Do I Need to Get Preapproved for a Mortgage?
The first thing you need is a good lender. Homes for Heroes local mortgage specialists are NMLS licensed mortgage loan officers and originators who offer reduced lending fees to save our heroes some money on their home purchase. To speak with our local mortgage specialist in your area simply sign up on our site. We will alert them to contact you and they will answer all of your questions.
Your lender will likely ask you to assemble and submit the following documentation needed for mortgage pre-approval:
- Personal Identifying Information: This includes information such as full name, date of birth, address history, marital status, dependents, years of school attended, etc
- Employment History
- Drivers License or State ID Card
- Social Security Number
- Type of Home Loan: Your lender will want to know the type of loan you want
- Length of Time to Repay the Loan (ex: 30-year mortgage)
- Down payment percentage: The percent amount you plan to put down as a down payment
- Tax Returns: Most recent federal and state tax returns will likely be required. Often lenders will require the most recent two years of returns.
- Bank Statements: Most lenders will require statements for the most recent two months for any checking, savings or money market accounts
- Retirement or Investments: Lenders will need the most recent quarterly 401k statement for retirement accounts, and two months of statements from investment accounts (IRAs, stocks, bonds, CDs)
- W-2 Forms: All W-2 forms for the most recent year.
- Paystubs: Two most recent payroll statements for each job
- Rental Property Income: Only if being used to qualify for a mortgage
- Monthly Debt Payments: These include student loans, car loans, credit cards
- Current Mortgage (if applicable): Most recent statement and declaration page of the homeowners and mortgage insurance policy, property taxes and homeowners association dues
- Rent (if applicable): Rent payments made over past 12 months and contact information for landlords over the past two years
- Divorce (if applicable): Divorce decree and any child support or alimony payments
- Down Payment Gift Letters (if applicable): Gift letters are not required for pre-approval but your lender may want clarification on how you intend to pay for your down payment.
What is the Mortgage Pre-Approval Process?
To get pre-approved for a home loan, submitting a loan application and going through the mortgage pre-approval process can be challenging. It takes time and effort to assemble and submit all of the necessary paperwork to your lender. And, it takes time for the lender to conduct their evaluation. However, the steps of the process are pretty straightforward:
- Submit mortgage application to your lender
- Submit all required documentation to your lender
- Lender conducts thorough evaluation of submitted documents
- Lender will provide you with a loan estimate
- Lender will provide you with a pre-approval letter
How Long Do Mortgage Pre-Approvals Take?
It typically takes 1-3 business days for a lender to determine a pre-approval loan estimate. It generally depends on how quickly you can assemble and submit all necessary paperwork to the lender for evaluation. This process may take a little longer if you are self-employed, or if you have a past foreclosure, bankruptcy, IRS lien or poor credit. Also, as mentioned earlier, “pre-qualified” and “pre-approved” have different meanings. But they are often used interchangeably, so be sure your lender is actually going through the pre-approval process if that’s what you intended.
How Long Do Mortgage Pre-Approvals Last?
Mortgage pre-approvals typically last 90-120 days depending on the lender. However, if you need more time your lender can typically extend the offer but it will likely require another review of your credit report.
Can You Get Pre-Approved by Multiple Lenders?
The short answer is yes, but there are best practices to be aware of before deciding to get pre-approvals from multiple lenders so you do not hurt your credit score.
If you choose to shop around for pre-approvals from multiple lenders, you typically have a 14 day window where multiple lender credit inquiries (meaning lenders pulling your credit history) are counted as a single credit inquiry and will not negatively impact your credit score. So, to be safe, get those multiple credit reports pulled in the same 14 day time period.
Homes for Heroes Mortgage Specialists can Save You Money
Now that you know how important it is to get pre-approved for a home loan, simply sign up to speak with a Homes for Heroes mortgage specialist. They can assist you in conducting the pre-approval process, help to get you a pre-approval letter, and set you up to confidently start house shopping. They are committed to helping heroes like you save money on your home purchase. On average, our heroes save $2,400 when they work with a Homes for Heroes real estate and mortgage specialist to purchase their new home. It would be an honor to assist you in making your next move.