There are several tools you can use to ensure yourself of the best chance of successfully buying a home, and the right home at that. These include getting your mortgage pre-approved. But first, what is mortgage pre-approval? This means the lender is giving you a near-guarantee that you can borrow a given amount of money at a given interest rate, though this will still be contingent on property appraisals and a few other factors. So what can you do if you want your mortgage loan pre-approved by the lender?
What Does Mortgage Pre-Approval Mean?
Pre-approval simply means your lender believes you have the ability to make a down payment on your home and that you are earning enough money to make timely payments on your mortgage. The lender would have to compare the collateral within the value of the property against the loan amount; in layman’s terms, the home would have to be appraised at a value that is at least equal to the purchase price.
Before the Mortgage Pre-Approval Process
Though, not part of the pre-approval process per se, you will first have to check your most recent credit report and your most recent FICO credit score. If you know your credit score and are aware of what’s in your credit report, you’ll have more than a few clues regarding the mortgages you can qualify for. And if you find any disputable information contained in your credit report or any questions you need clarified, you can take care of all that before going on house-hunting expeditions and trying to get that mortgage pre-approved.
The Pre-Approval Process
Once that’s done, the pre-approval process can start in earnest. Your lender will take a good look at your credit standing, and will check the veracity of the income information you had furnished. You’ll then receive a pre-approval letter, stating that your mortgage will only be approved after you’ve made a purchase offer and furnished some documents of your own, namely the purchase contract, the appraisal, the preliminary title information, and income and asset-related documents. We should also add that pre-approval is not to be confused with approval – there is still a chance your mortgage won’t be approved even if you’ve already been pre-approved.
You will also have to show your pre-approval letter to the real estate agent and the seller once you’re prepared to submit a purchase offer. Having a pre-approval letter will give you the edge you need in the current housing climate, when competing with other prospective buyers.
We cannot underscore the need to furnish each and every piece of required documentation to your lender. If you’re missing a document or two, then you can kiss your hopes of pre-approval goodbye. Then again, the documents you need to furnish are actually simple ones – these include bank account statements, pay slips, tax returns, and W-2 forms from the last two years, and documentation that backs up other sources of income. This would take into account second jobs, overtime pay, bonuses, commission, Social Security payments, retirement benefits, and other related sources. Once you’ve provided all that, it will all be up to the underwriter to determine if you’ve actually been approved for the mortgage or not.