Getting preapproved for your mortgage is an important step to take when you are ready to shop for a home. It shows sellers that you’re a serious homebuyer and that you can secure financing -- which allows you to shop smarter and make stronger offers!
Let’s look at what it means to get preapproved and how to get started.
What is A Preapproval?
A preapproval is as close as you can get to confirming your creditworthiness without having a purchase contract in place. You will complete an application and the lender, like us here at 1st Securities Mortgage, will verify the information you provide. They'll consider your assets and credit score, and determine what loans you could be approved for, how much you can borrow and what your interest rate might be.
Preapproval Vs. Prequalification
Preapproval and prequalification are both a means of understanding how much you could borrow. There are some slight differences between these two processes, though some lenders use these terms interchangeably.
A mortgage prequalification is like a preapproval, but it may not be as accurate. With a prequalification, you won’t have to provide as much information about your finances, and your lender won’t pull your credit. Without your credit report, your lender can only give you rough estimates. This means the approval amount, loan program, and interest rate might change as the lender gets more information. Because a prequalification is an initial review of your finances, you usually don’t need to supply documentation (like bank statements and pay stubs) during this stage.
Overall, preapprovals for a mortgage carry more weight than a pre-qualification. If given the choice between the two, you could outshine other offers on a property if you have a preapproval in hand versus a prequalification.
How to Get a Preapproval
Before you can get a home loan preapproval, work with your lender to verify your financial information and obtain a loan estimate. Let’s walk through each of the steps and review the parts of the process you’ll be responsible for.
Collecting Your Documentation
The preapproval process is essentially a mortgage application. This means your lender or loan originator will want to take a comprehensive look at your financial portfolio. You should be prepared to provide information on the following:
- Proof of income
- Employment verification
- Proof of assets
- Credit history
- Debt-to-income ratio (DTI)
You’ll also want to have the necessary documentation on hand to ensure the process goes smoothly. Here are a few items you should have on your mortgage preapproval checklist:
- W-2 statements
- Pay stubs
- Bank statements
- Driver’s license
- Social Security number
Once you’ve submitted all your information to the lender, you can expect to receive your loan estimate within 3 business days! The loan estimate provided will let you know whether you’ve been preapproved and the total amount.
Timing Is Everything
Knowing how much mortgage you can expect to take out is highly beneficial to you as a home buyer, and it can help you narrow down and focus on your best options.
That means the best time to get preapproved is at the start of your home buying journey. If you know you’re in the market for a new home, apply for preapproval early to get a picture of your mortgage options and show agents you’re a serious buyer.
Check Your Credit Score
Mortgage preapproval typically requires a hard inquiry into your credit. While this may cause your credit score to drop slightly, getting preapproved won’t hurt your credit in a significant way. Subsequent inquiries from other mortgage lenders within the same period (usually about 45 days) won’t affect your score at all.
Receive Your Home Loan Preapproval Letter
Congrats! You have your preapproval letter in hand and are ready to start shopping. There are a few reasons why having the preapproval letter is important. First, real estate agents typically want to see your preapproval letter before they show you houses. This ensures they don’t waste their time showing you homes outside your budget.
And second, as we already touched on, the preapproval letter is something you can share with the home’s seller when you make an offer. It shows you won’t have any problems getting financed for the amount you’re offering.
Understanding How Long Preapproval Lasts
Your preapproval letter doesn’t last forever. Check your expiration date and keep it in mind as you look at homes. Though it varies from lender to lender, a preapproval is typically valid for 60 to 90 days. If you haven't settled on a home within that range, you can request a renewal by giving your lender your most up-to-date financial and credit information.
Let the search begin! House-hunting with a preapproval letter provides a tool to show you are serious about purchasing a home, and financially equipped to do so.
As previously mentioned, preapproval letters have an expiration date, so it helps to have a well thought out timeline for house shopping.
After you find the right home and your offer is accepted, it’s time to officially start the mortgage application process! This is where our highly experienced 1st Securities Loan Originators shine. We’ll guide you every step of the way, and make it our priority to ensure a simple, fun, and efficient home loan journey.
Are you ready to get preapproved? Connect with one of our 1st Securities Loan Originators today!