Getting pre-approval on a mortgage makes a huge difference to get funding on time. Even if there are other buyers interested in getting the same home you desire, the sellers will prioritize your offer, as you have loan pre-approval documents. They know that you are a better prospect, than the ones who are still negotiating with lenders.
Another helpful aspect about loan pre-approval is that you will know the exact amount that you can get. While hunting for a home, you won’t have to waste time on homes that exceed the amount, for which you have the approval. For example, you got a pre-approval of $250,000, so you will not go looking for homes with a higher value than this amount.
Before starting the pre-approval process
Check credit history
The first step is to check your credit report and history. It gives you an idea of the kind of loan and interest rate you may be eligible for. You even get time to clarify issues identified on the credit reports before applying for home loan pre-approval.
Find a lender
Many mortgage companies are available but the prequalifying option allows narrowing the list. The prequalification process is quicker than the preapproval process. It is an informal process, where the borrower gets interviewed regarding their income, expenses, and assets.
It offers an idea of the affordable price range. Prequalification does not mean you will actually secure the loan but helps to select three best lenders for the intense preapproval process.
What documentation is needed for home loan preapproval?
- Income information – You will need the past two years’ tax returns, pay stubs, and W2. Besides income from additional sources [if applicable] like bonuses, commissions, dividends, VA & retirement benefits, or overtime.
- Asset information – Asset information includes the bank account statements or gifts that show money, not debts.
- Personal details – A valid ID [passport or driver’s license] and SSN for a credit check.
Pre-approval takes 215 to 30 days but automation has enabled underwrites to complete it in a day or few hours. The time depends on the lenders and the underwriter’s pre-approval process. The underwriter has four decision options including approval, approval with conditions, denied or suspended [means more documents are needed].
In case your first loan preapproval application gets rejected discuss with the lender why your request needs to be approved. Follow the pre-approval steps carefully and move towards buying a new home.
Mortgage prequalification versus preapproval
Prequalification means offering the lender a bigger picture of where your financial status stands including assets, income, and debts. There is no cost involved in this process and can be conducted over the phone. Alternatively, preapproval is an involved process, where you need to supply necessary documents, credit scores, and application fees.
Received preapproval yet got denied. Why?
Preapproval first and then denial can be because of common reasons. The lenders need consistent work history but after preapproval they found gaps, so ended up denying. Another reason is a negative aspect may be identified on your credit history. Perfect credit is not necessary for loan preapproval but some lenders have their protocols. So, borrowers need to be aware of their credit profile before they submit the pre-approval application.
A preapproval also speeds the final home loan approval process!