Before you buy your first house, there are a few things to think about. You must know your budget, whether you want a condo, townhouse, or single-family home, the location you want to live in, and the amenities you must have. But there’s one more thing you should do before you start searching seriously. When you’re ready to start looking at houses, you should be preapproved for a loan.
Fortunately, being pre-approved is a simple process that no longer requires an in-person appointment. You may easily apply online with a bank and get pre-approved in minutes after providing the necessary information. Here are some things you should know about getting preapproved.
It Isn’t the Same as Being Prequalified
Your lender will assess how much you can borrow based on the financial information you provide when you get prequalified. They can give you an estimate of what type of mortgage you could be eligible for, but they will not verify your information. A prequalification has less authority than a preapproval.
When you are preapproved, the lender confirms that they have conducted a preliminary assessment of your finances and are prepared to offer you loans. When you apply for the loan, you will still need to fill out a mortgage application, and the lender will do a more extensive audit of your finances. The preapproval letter, on the other hand, indicates that your loan will be granted if you submit the required documents and make an offer on a house, barring any major issues.
Get Pre-Approved Immediately
If you’re concerned about how much house you can buy, the banks will tell you straight up that your dreams are greater than your budget. Because you’ll know the exact amount you can finance, pre approval takes the uncertainty out of budgeting while looking for a property. Not to mention that most vendors will turn down your offer if you don’t have one. Which leads us to…
It’s Something That Home Sellers Expect.
Many sellers will not consider you serious until you have a preapproval letter. If you aren’t pre approved, realtors will refuse to work with you or show you houses in highly competitive areas. So, if you’re ready to begin looking, and especially when you’re ready to make an offer, you must first get pre approved.
Do A Credit Check
It’s a good idea to check your credit score and report before applying for pre approval because you’ll need to provide this information to your lender. Your credit score will assist your lender in determining the types of loans that are accessible to you and providing a more accurate rate quote.
Your credit report is available for free and has no bearing on your credit score. The bank will reduce your score by a few points after it does a credit investigation. Numerous inquiries from multiple banks in a short period of time, on the other hand, will not affect your credit, so don’t be scared to shop around for mortgages.
Compile the Financial Data You’ll Need
In order to acquire a preapproval letter, you’ll need to submit a number of documents. Prepare yourself by having the following documents on hand:
- W-2 forms (from the last two years)
- Pay stubs (usually from the last 60 days)
- Bank account statements (usually from the last 60 days)
- Investment account statements (usually from the last 60 days)
- Tax returns (from the last two years)
- Other sources of income (side job, bonuses, etc.)
Personal details such as your driver’s license and social security number will be required by your lender in addition to your financial information, so have them ready as well.
Understand Pre Approval Conditions
After you’ve gathered all of the necessary information, the underwriting system should send you a preapproval letter in minutes, with one of four criteria: approved, approved with conditions, suspended, or refused.
If there are still additional requirements to be fulfilled, it’s likely that some information is lacking. If you’re turned down, it’s possible that your financial situation isn’t yet secure enough for you to take out a house loan, or that you need to improve your credit score.
It’s fine if you need to do a little more work before receiving the letter; your lender will be able to provide you with advice on how to fulfill any current requirements.
The Letter Isn’t Valid Forever
Everything, even your financial condition, changes. A typical pre-approval letter is only valid for 60 to 90 days after it is received. Because the time frame varies, make sure to inquire about it when you apply.