WHY & How to GET PRE-APPROVED FOR A MORTGAGE
Many first time home buyers are confused as to why they would get a pre-approval for a home if they are not sure the time is right to buy.
Getting pre-approved for purchasing a home is helpful for a few different reasons:
KNOW HOW MUCH HOUSE YOU CAN AFFORD.
When you get pre-approved, the bank looks at how much money you make, your credit score and other financial information. They will tell you how much of a mortgage you are qualified. They can also tell you how much house you can afford to stay within your budget. Having a pre-approval letter can help you look at homes that are in that price range. Once you have a pre-approval letter you can show your realtor what you qualify for, and explain what you’re looking for, and your realtor can help you find something that works best for you.
sELLERS PREFER TO WORK WITH BUYERS WHO WILL CLOSE ESCROW.
Providing your agent a pre-approval letter and explaining what you qualify for helps you as you look on the internet and your agent for something in your price range. Including a pre-approval letter in an offer on a home assures them you’re a serious buyer. This can time and money because seller prefer to work with buyers that will close escrow. I’ve seen buyers’ offers accepted at a lower price, because they are pre-approved; not just pre-qualified.
WHAT IS THE DIFFERENCE BETWEEN PRE-APPROVAL AND PRE-QUALIFIED?
Many lenders don’t want to spend the time and money to give you a pre-approval. Pulling a credit report, processing and underwriting the loan pre-approval costs lenders money, and not all pre-approvals actually close escrow. If the loan doesn’t close, the lender doesn’t get paid and they time and money is wasted. Those lenders will just make sure the deal seems OK, without pulling credit or verifying your income or assets. If you just want to test the waters, a pre-qualification letter is fine. If you are serious about buying a home now, get a full pre-approval. Otherwise, you could be n for a big letdown.
WHAT PAPERWORK DO I NEED TO GET PRE-APPROVED?
There are a number of things that a loan officer will need to create a pre-approval letter:
1. Proof of Income
A lender will only pre-approve you if they can prove that you have enough money to pay your mortgage every month. This involves ensuring you have income stability. You can prove this to a loan officer by giving them the last two years of your W2s, tax returns, or your last two pay stubs.
2. Proof of assets
Next, a lender has to ensure that you have enough money in the bank for a down payment. These are your “assets”.
3. Good credit score
The lender will want to know if you will pay your mortgage on time. A credit report will help them determine if the mortgage lender trusts you enough to lend you a significant amount of money. A 580 credit score is the cut off for an FHA loan, while a 720 is the score you need to have the best rates from a traditional loan.
The lender will need a passport or social security card, your driver’s license and your signature, stating you allow them to use this information to look up your credit report and create a pre-approval letter for you.
Please feel free to ask any questions that you have after reading this blog. I can be reached at (949) 466-5568.