Home Loan Pre-Approval – How it Works

Throughout the home buying process, you will encounter a series of steps to take that ensure an easy, efficient, and prompt closing. Understanding what you are able to afford is a great first step in shopping for anything. So, why wouldn’t you do so for what could be the largest purchase of your life?

When you get pre-approved for a mortgage home loan, it means that a lender has evaluated your credit, employment history, and residential history to determine which home loans you are eligible for, the conditional size of the home loan that you could borrow and the conditional interest rates that you would be offered.

At Chris Doering Mortgage, we make it our priority to make the process of purchasing a home as easy as possible. That’s why we outline everything you need to know about the home loan pre-approval process. This starts with understanding the difference between being pre-approved and pre-qualified for a mortgage.

Pre-Approved vs. Pre-Qualified

Although they sound similar, there are distinct differences between being pre-qualified for a home loan and being pre-approved.

The largest difference comes down to credit. Unlike a pre-qualification application, home loan pre-approvals require a preliminary credit check. Because of this extra step in the application review, the pre-approval process is more thorough in gauging a borrower’s financial standing. Therefore, it provides a better estimate of what a home loan would look like for the borrower.

A mortgage pre-qualification is a more informal process and does not carry as much weight in the eyes of sellers than a mortgage pre-approval. To get pre-qualified, your lender will ask you for information on your assets, income, and liabilities, and give you a ballpark estimate on what kind of loan you may be eligible to secure. Getting pre-qualified for a home mortgage loan is not required for pre-approval but many home shoppers get pre-qualified as a precursor to getting pre-approved. This can be completed over the phone or online using a pre-qualified home loan application.

Both sellers and real estate agents prefer pre-approval. A letter of pre-approval positions you as a legitimate candidate who is ready to buy.

How to Get Pre-Approved for a Mortgage – Documentation You Need

The home loan pre-approval application requires multiple forms of documentation regarding your personal information as well as your financial standing. Understanding what that documentation will consist of and gathering it beforehand will help you stay organized and ensure the pre-approval process is efficient. When applying, be prepared to supply the following:

Personal Assets

Your personal assets are shown through your bank statements from the past few months and any real estate holdings information including: property address, current market value, mortgage lender’s name and address, loan account number, balance and monthly payment.

Personal Debt

Personal debt is evaluated by looking at a credit report and any other new debt that is not yet listed on your credit report such as auto loans, student loans, mortgage loans, credit cards, etc. Your debt-to-income ratio will also be reviewed as a part of your application.

Employment Verification

You will be asked to provide the last 30 days of paycheck stubs as well as the past two years of W-2 or I-9 paperwork. If you are self-employed, you will be required to provide additional information on their business and income.

Residential History

The past two years of residential addresses and mortgage monthly payments will be required in the mortgage pre-approval application. If you have rented for the past two years, then the address and landlord’s information will be requested for review.

What’s Next?

Once you have filled out the application and provided all necessary documentation, the mortgage application will be reviewed by your lender and a conditional loan amount will be provided. With this amount, you will be able to shop for homes that align with what you will be able to afford.

A pre-approval letter in hand is a great tool to have when you are shopping for a home. Realtors and sellers look at a pre-approval letter as a strong form of evidence that you are prepared to buy a home.

It’s important to note that even if you have a pre-approval letter, this does not mean that the mortgage is locked. Your home mortgage will still be subject to the home’s appraisal, home inspection, and any changes that you might incur financially before closing.

At Chris Doering Mortgage, we help our clients through every step of the home buying process. Contact our office in Gainesville, Florida to apply for a mortgage with professional guidance.