Getting pre-approved for a mortgage is one of those rare things that offers only positives and no negatives. If you are thinking about buying a home, there really is no reason not to do it. Getting pre-approved at the beginning of the mortgage process provides significant advantages to borrowers and also helps you avoid unfortunate surprises later on.
The pre-approval process focuses on your income, assets, employment history and credit profile. Lenders want to determine what size loan you can afford an make sure that you can qualify when you actually apply for the mortgage. Some lenders may request certain financial and personal documents to verify your income. Most also want to know your credit score and if you have experienced any significant credit issues in the past. In sum, the process is kind of like a dry run for when you submit your loan application.
After the lender has reviewed all of your information, you should be pre-approved for a specific mortgage amount. The lender should also provide a letter, email or online certificate that documents the pre-approval. When you shop for homes, you can provide this document to property sellers or their real estate agent so that they know you are a legitimate buyer and ready to move forward with financing as soon as your offer is accepted. Please note that pre-approval is for the borrower and not a specific property. If you buy a unique or unusual property, that may affect your ability to qualify for the mortgage. But in most cases, borrowers that are pre-approved are able to close their mortgage and buy the home they selected.
The mortgage pre-approval process is free, saves you time and money, provides greater certainty your loan will close, speeds up the application process, makes you a more attractive buyer to home sellers and enables you to identify potential issues before you officially apply for the mortgage. Plus, there is no obligation for borrowers. Continue reading to understand how to get pre-approved for a mortgage.
Going through the process of getting pre-approved for your mortgage provides certainty that you will be able to obtain a mortgage to buy a home or refinance your mortgage when you want to. Through the pre-approval process, the lender reviews your personal and financial information, including your credit score, to determine your ability to qualify for a mortgage and assesses what size mortgage you can afford.
Understand How the Mortgage Pre-Approval Process Works
Because the lender reviews your information in advance of you applying for the mortgage, you eliminate any disappointing surprises, such as a low credit score or high monthly debt preventing you from qualifying for the mortgage. Additionally, you gain an understanding of the lender’s mortgage underwriting rules and borrower requirements so you know what to expect through mortgage processing and closing.
In most cases, mortgage pre-approval is subject to the borrower finalizing his or her mortgage application as well as the lender’s review of the home purchase contract, property appraisal and other documentation required to close your mortgage. So although getting pre-approved does not guarantee that your mortgage will close, it does provide a significant amount of certainty that you can obtain a mortgage.
Getting pre-approved allows you to move quickly when you find a property you want to buy or if you decide to refinance your mortgage. Because you have completed the initial borrower review process with the lender you reduce the time it takes to process and close your mortgage when you decide to move forward.
Additionally, it will help you get organized for the mortgage process including gathering the personal and financial documents required by the lender. In short, getting pre-approved puts you in the best position to close your mortgage as fast as possible.
If you are in the market to buy a home, getting pre-approved provides you a competitive advantage as compared to other borrowers. From a home seller’s perspective, it shows that you are both qualified financially and serious about the home buying process.
In a competitive housing market if multiple potential home buyers place offers to purchase a home, buyers that are pre-approved for a mortgage typically have an advantage over the buyers that are not. Get pre-approved to give yourself the best opportunity to purchase the right home when you find it.
Getting pre-approved by a lender should always be free. If a lender attempts to charge you then you should work with a different lender.
From the lender’s perspective, pre-approving a borrower makes it more likely that the borrower will choose the lender for his or her mortgage. This means that the lender should be willing to put in the upfront work for free to develop a relationship with you so that you ultimately select that lender for your mortgage.
Being pre-approved by a lender does not obligate you to work with that lender to obtain your mortgage. We recommend that you continue to compare proposals from other lenders to find the mortgage that is right for you.
Use ourMortgage Comparison Calculatorto compare loans with different rates and closing costs
It is important to emphasize that you have absolute no obligation to select the lender that pre-approved you and you should select the lender and mortgage that best meet your needs. It may be with the lender that pre-approved you or it may be with a different lender. You may find a lender that offers a lower mortgage rate or closing costs in between when you are pre-approved and when you find a property that you want to buy.
Although switching lenders requires you to start the process over, selecting a mortgage with a lower interest rate and fees can save you thousands of dollars.
A key advantage of getting pre-approved is that it enables you to identify and proactively resolve potential issues with your mortgage application before you officially apply for the loan. For example, you may not realize that you have a credit issue that you need to address. Or you may be missing important documents that are required to qualify for the loan.
Review Top Obstacles to Getting a Mortgage (and How You Can Overcome Them)
Finding and solving potential issues before you make an offer on a home helps eliminate surprises that can make make it difficult or impossible for you to qualify for a mortgage. Addressing these issues during the pre-approval process is preferable to addressing them after your offer has been accepted and you need to close your loan to complete the home purchase process.
Although you do not need to provide your personal and financial documents to get pre-approved for a mortgage it can be helpful to have this information available to you when you speak with lenders. Documents such as tax returns, pay stubs, bank statements and loan statements provide information regarding your monthly income and debt expenses that lenders use to determine the loan amount you can afford.
Organizing these documents ahead of time also makes the process go more smoothly when you ultimately apply for the mortgage. For example, it is better to know sooner rather than later is you are missing any personal or financial documents.
Review our Mortgage Document Checklist
Your credit score is one of the most important inputs that determines your loan terms including your mortgage rate. The lender, in turn, uses your mortgage rate to determine the loan you are pre-approved for. This is why it is important to know where your credit stands before you contact lenders.
You can check your credit report and score for free and various websites and apps. You can then provide this information to the lender so that the lender does not need to pull your credit report to pre-approve you. When you check your own credit, your score is not affected -- this is known as a soft inquiry. On the other hand, if a mortgage lender pulls your credit report, your score may dip at least temporarily.
While there may be differences between the credit score available on the free websites and the score used by the lender, reviewing your own credit information enables you to get pre-approved with minimal impact to your credit. In an ideal scenario, the lender only pulls your credit report when you apply for the mortgage.
Review What Credit Score is Required for a Mortgage?
Being pre-approved for your mortgage offers multiple benefits including speed, certainty of closing and providing a competitive advantage in a competitive housing market. Plus, the process is free and no obligation for applicants. Continue reading to learn more about these advantages.
The pre-approval process is also a good time to familiarize yourself with key mortgage qualification guidelines including credit score, debt-to-income and employment history requirements. Knowing these guidelines in advance puts you in the best position to qualify for a mortgage.
Additionally, qualification guidelines vary depending on factors such as your employment and loan program. When you contact lenders to get pre-approved make sure to understand the specific requirements that are applicable to you.
Now that you have your documents in order, you have reviewed your credit and understand mortgage qualification requirements, you are ready to get pre-approved. Although you only need to be pre-approved by one lender, we recommend that you take the opportunity to shop multiple lenders. This enables you to find the best mortgage terms and confirm that the lender offers the mortgage loan program you want.
Use our free get pre-approved form to get approved and review loan terms from multiple lenders. The form is easy to use, no obligation and getting pre-approved does not affect your credit score.
If you would prefer to not fill out a form, you can contact multiple lenders in the table below and ask about their pre-approval process. This puts you in control of the process but again, we always recommend that you speak with several lenders to compare qualification guidelines and to find the best mortgage terms.
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"Getting Pre-approved." My Home by Freddie Mac. Freddie Mac, 2019. Web.