If your resolution is to get into a new home this year, it's important to understand the mortgage pre-approval process.
Anyone looking to buy — especially in a competitive market — should ask a reputable lender to pre–approve them for a mortgage. A mortgage pre–approval letter:
- Confirms you can qualify for a mortgage;
- Tells you how much you can expect to borrow, provided your financial status doesn't change;
- Makes you a stronger home shopper since sellers won't have to worry about whether you can qualify for a mortgage.
During the pre–approval process you'll fill out the loan application provided by your lender. The lender will review your credit, financial and employment information. There may be an application fee.
What kind of information will your lender be looking for? For one thing, they'll want to know you're a good credit risk — that you have a solid history of paying your bills on time and the financial ability to make your mortgage payments. They'll also want to know how much capital or cash reserves you have available, and more information about the kind of place you'd like to buy. So your lender will be looking at things like your W–2 statements, bank statements, credit report and tax returns.
Although mortgage pre–approvals are usually good for only a limited time (be sure to discuss this with your lender), they're worth getting. The reason: Even though you'll still need to apply for a mortgage once you find a house to buy, your pre–approval letter speeds up the process and helps clear the way by telling home sellers you're a serious buyer.
With a pre–approval, you'll receive a conditional commitment in writing that outlines the maximum amount you can borrow. Remember, it's a maximum, and not necessarily the amount you should borrow. You'll want to stay within your budget and within your comfort level.
Have a comment or question about this post? Email us to let us know what's on your mind.