Pre-Approval: How To Get It

When it comes to buying your first piece of real estate, it is not uncommon for novice buyers to have a lot of questions. One of the topics that many are unsure about in terms of legality, logistics and process is the mortgage pre-approval. Here is a breakdown of what you as a potential home buyer need to know about the process and how to get it.

What is Pre-Approval?
A mortgage pre-approval is generally a written statement from a lender (public or private) stating the lender’s preliminary determination that the applicant would qualify for a particular loan amount under that lender’s guidelines. The details and loan amount are based on income and credit report. Most pre-approval letters are good for between 60 to 90 days.

If I am Pre-Approved am I Guaranteed Approval for a Mortgage?
No. Even if you receive a pre-approval letter from a lender you are not guaranteed a specific rate or loan term. Regardless of pre-approval, a lender may require additional income and asset verification, or other additional details prior to extending you a loan. Pre-approval letters are subject to modification or cancellation if your financial situation changes. A pre-approval letter is not an offer to lend, a commitment, or a guarantee of specific rates or terms. It should also be noted that simply having a pre-approval letter does not guarantee that an offer you make on a home will be accepted by a seller.

Why is Pre-Approval so Important?
There are many reasons why you should get pre-approved. Arguably, the most important reason is that you will get an accurate idea of how much home you can actually afford. This is a great way to help you narrow down your home search and ensure you only look at houses that are actually in your price range. A pre-approval letter also helps you prove to real estate agents and sellers that you’re a credible buyer and able to act fast should you find the right home. To  some sellers, a letter of pre-approval is so important that they might even require potential buyers to submit a pre-approval letter with their offers. That said, having a pre-approval letter does not guarantee that your offer will be accepted by a seller. Being pre-approved for a mortgage is one way that you can stand out in a competitive real estate market. If you make an offer on a house without a pre-approval, your offer may not be taken as seriously as an offer from another person with it.

What is the Pre-Approval Process?
One of the first things to happen in the mortgage pre-approval process is that the lender will ask for some basic information about you and your financial history. If you have a co-borrower, the lender will also need this information about both applicants. Generally, a lender will then request your Social Security number and permission to pull your required credit report (and those of any co-borrowers). The rest depends on whether or not the information that you provide and the information obtained from your credit report satisfies the lender’s guidelines for the loan in question. This is the point when the lender will make a preliminary decision in writing stating that you would qualify for a particular loan amount subject to the conditions outlined in your pre-approval letter.

Not Approved?
Not everyone will get pre-approved for a mortgage, decisions are often based largely on the local economy, and real estate market, in combination with your personal financial history. However, there are a few things you can do to get better prepared for the financial responsibility of  homeownership:

  • Correct any errors on your credit report, which could help to raise your credit score.
  • Work to improve your credit score. Your credit score is impacted by payment history, outstanding debt, the length of your credit history, recent new credit inquiries, types of credit used, and more. A score of 720 and higher will generally get you the most favorable mortgage rates.
  • Lower your overall debt and improve your debt-to-income ratio. In general, a debt-to-income ratio of 36 percent or less is preferable; 43 percent is the maximum ratio allowed.
  • Take some time to not only pay off your debts but to also increase your down payment amount in order to qualify for a larger loan. Learn more about down payments.


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