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Buyer’s Guide to Mortgage Pre-Approval

Real estate concept

A sure-fire way to cut through the process of finding a new home is by getting pre-approved for a mortgage. This is a practice recommended by the best Realtors in the business.

What is a mortgage pre-approval?

To clarify, mortgage pre-approval and pre-qualification are not the same. Here is what distinguishes the two:

Pre-qualification is when you give a lender your basic information and a general overview of your finances. This can give them an estimate on your capacity to spend for your home and the amount that you can be qualified to loan.

A pre-approval is more substantive. There is a detailed examination of your income and employment history, debt-to-income-ratio (DTI), assets, and credit history. You will be given a complete picture of your finances and a more exact loan estimate. You will also learn the highest price you can afford to spend on a home, as well as the cost of monthly mortgage payment.

Why get pre-approved?

Gaining mortgage pre-approval gives you an edge over other buyers in the real estate market. More Realtors will be more amenable to working with you since this guarantees your credibility as a home buyer.

Once you know how much you can spend on a home, you can zero in on properties you can afford. This will save you time and money.

While you may be tempted to apply for more than one pre-approval – seek a second opinion, if you will – this is a waste of time and resources since differences in results will only be minimal.

What do I need to get pre-approved?

The following documents are required to begin the pre-approval process:

  • Personal identification documents (driver’s license, passport, social security card)
  • Proof of income (W-2 forms from the last two years, pay stubs covering the last 30 days, personal and business federal income tax returns for the last two years)
  • Proof of assets (bank statements, investment account statements, quarterly statements for asset accounts)
  • Credit history showing a good credit score. Most lenders need a Fair Isaac Company (FICO) score of 620 or above for conventional mortgages and loans.
  • Employment verification. Lenders will contact your current employer to ask about your employment and your salary. If you are self-employed, you will have to provide supporting documents.

The lender will assess your financial resources based on documents you submitted. You will then be provided with a pre-approval letter stating the adequacy of your presented information and your highest loanable amount. It will also show the mortgage interest rate that will protect you from increases in the next 120 to 160 days.

Note, though, that getting a pre-approval letter doesn’t guarantee you a loan. You must first identify a specific property before you can be issued a loan offer. Even this is still subject to underwriting. Until then, you must make sure to keep your finances in check.

Got any questions on mortgage pre-approval? Or are you looking for affordable homes in Castle Rock, CO? Call me, Jodi Randa, at 720-244-1796 for answers to your questions. You may also send us an email at jodi(at)randacoproperties(dotted)com. Our team will be glad to help!