Are you interested in starting your search for a new home? Before you get too excited about the prospects of being a home-owner, there is one last step that you have to take: obtaining pre-approval from a mortgage lender.
If you are not totally sure that you are going to buy, you could consider a pre-qualification letter. These can be issued by any banking institution – whether it be your neighborhood credit union or an online bank.
A number of online banks can actually issue these to be printed out after you complete a series of questions regarding employment, your credit, total assets and desired purchase price of property.
The only problem with a pre-qualification letter is, no seller will take them as a serious offer. That’s because they are drawn up solely on good faith – ie your word. They assume all the information you’ve presented is correct. Only when you get the actual proof do you have an official pre-approval letter.
Documents Generally Needed for Pre-Approval Letter:
1) Bank statement showing total assets. If you don’t conduct your daily banking with this institution you will need to provide proof of assets – specifically noting where the down payment is coming from.
2) Employment records for usually the past 6 months. These can be copies of your w2′s.
3) If self-employed expect to need previous two years tax returns.
4) Your credit score will automatically be pulled with the financial institution you are working with. (Note, this can also be done for a pre-qualification letter.)
Learn what you can Afford
Do you find yourself wondering how much of a home you can truly afford? After filing for a pre-approval the institution will be able to tell you exactly how much home you can afford. Though, if you’re just after this figure as an estimate, you can generally get a good idea with a pre-qualification letter.
Also keep in mind that all lenders are different. Just because Lender A says you can only afford $250,000 doesn’t mean lender B won’t say you can have $275,000 or more. The amount of risk each banking institution is willing to take on is different therefor the amount they are willing to loan you may vary quite significantly.
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A Head Start on the Application Process
Consider this situation: you received pre-approval from the bank. Soon after, you find a home that you love and put down an offer. The seller accepts and it is now time to move forward with the actual mortgage application.
Since the bank has already offered a pre-approval, you are ahead of the game. You have a contact name, they know who you are, and some of your information is already in the system. Now, all you have to do is follow through with the processing of the formal mortgage application.
Show Sellers that you are Serious
For somebody selling their home, there is nothing worse than accepting an offer just to find that the buyer is unable to obtain a mortgage for the appropriate amount.
When you can prove that you have been pre-approved, the seller is sure to take your offer much more seriously. They will feel more comfortable dealing with you, knowing that financing is not going to be an issue down the line.
The pre-approval process is not the same with every bank. For instance, one bank may turn you down for a loan while another is more than willing to work with you. The same holds true for the amount of the pre-approval – expect this to be different with each lender.
You may want to seek pre-approval from multiple lenders to give yourself a better idea of where you stand, but if you are worried about your credit score be cautious about the number of times you apply. Each time your credit score is pulled, a slight ding is given to it. This can add up quickly if you’re applying to institutions with reckless abandon.
If you are close to beginning your home search or are already on the prowl, make sure you receive pre-approval from a bank before you go any further.