What is a Home Loan Pre Approval?
If you’re ready to buy a home, congratulations! Before you can go shopping, you need to know your budget. To find it, you’ll need pre-approval with a mortgage broker. We put together this pre-approval guide to help you have a positive experience when applying for your loan. We’re answering questions like, “what is a home loan pre approval” and “why do I need one” below!
What is a Home Loan Pre Approval vs. Pre-Qualification?
Many realtors or home buyers use the terms pre-qualified and pre-approved interchangeably. However, they’re completely different things.
What is Pre-Qualification?
Pre-qualification is the little sister to pre-approval. It still gives you information that is relevant, but it doesn’t quite finish the job.
A pre-qualification loan amount is what might be possible for you and your family — not what actually is. The process is a lot shorter and less involved than pre-approval.
Instead of doing a complete financial profile on you, the bank just checks a few things. Then, they send a letter with a possible loan amount.
Realtors and home sellers value pre-qualified offers less than pre-approved offers. Many houses deals fall through due to this misunderstanding. Keep reading to make sure your dream home isn’t one of them!
What is a Home Loan Pre Approval?
Getting pre-approved, however, is much more difficult than getting pre-qualified. You’ll need to have years of financial documents and time to spare, just to apply.
Once you’ve provided a mortgage broker with your information, there is a chance you can get denied. If one institution denies you, you can apply to another. More on that later.
If you come through the process and get approved, you are considered serious buyers. Realtors and homeowners will move your offers to the top of their lists.
Who Should Get Pre-Qualified
Getting pre-qualified will give you a tentative budget and shape your expectations.
Unfortunately, if you find your dream house while you’re just looking, it could be a problem. You’ll have to go through the pre-approval process before your offer receives serious consideration. This takes up valuable time. Motivated sellers don’t like to wait.
Who Should Get Pre-Approved
Anyone who has the intention to buy a house within the next 90 days. If approved, your loan amount expires after 90 days.
To avoid hurting your credit score and having to apply twice, you need to be serious about home-buying in that period.
What is a Home Loan Pre Approval Process Like?
The process for getting pre approved is a complicated one, so let’s walk through it.
Steps to Getting Pre-approved
1. Shop Around
Unlike applying for a credit card, you can shop around for your pre-approval.
The banks understand you’ll only be accepting one. So, a few applications won’t hurt your credit score.
This credit score protection only lasts for 45 days from the first application. Before you decide who to check out, do some online research. In fact, there are websites that rank banks and mortgage companies by customer experiences.
Some banks are more forgiving than others about blemishes on credit history, which is noted on reviews too.
Each bank will want a long list of documents from you, so you need to prepare. As a result, when you’re looking at the document requirements from each bank, lay them side by side.
Find the similar items and make that many copies. Put each document in a separate folder for each bank, to stay organized.
For single applications, the process is exactly the same.
To get the best rate possible, you’ll need to give the banks all relevant financial documents. These can include:
- Two Forms of Government ID
- Bank Statements
- Credit Score Statement
- Divorce Decrees
- Gift Letters
- Pay Stubs
- Rent Checks
- Loan Amounts & Terms
- Child Support Payments
Each bank will have its own specific list. They may include more items than currently listed here. As long as you’re going through an established bank or agency, your privacy will be protected.
The regular wait time for a home approval is a week, depending on the institution. Your broker will contact you as soon as they get any information back.
#5 Accept or Deny
You’re now ready to buy a home.
If you feel like the loan offer was too low, you can re-apply with another company. Their offer may be higher than your first, but not by a significant amount.
Avoid rejecting multiple offers in pursuit of the perfect one. It will eventually harm your credit history and make it more difficult to get a home.
#6 Make An Offer
Now that you have your pre-approved letter, you can bid on a home. The sellers will favor your offer and your preparation. This is why even when the process gets tough, it’s certainly worth doing.
If your offer wins, your broker will help you fill out the official mortgage application. After closing, you’ll officially be homeowners!
Tips for Pre-approvals
The next thing people want to know after asking what is a home loan pre approval like is how to increase their chances of being approved.
The best way to get approved is to be honest and cooperative with you broker. The more information you give to them, the better decision they’ll be able to make.
Avoid applying for new loans or credit cards for as long as possible before you apply. New applications create “hard pulls” on your credit, which lowers your score. If you have credit score worries, do your research in advance!
Now that you know everything you need to know about pre-approvals, what are you waiting for? Your dream home is waiting!
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