A pre-approval is used so that a potential lender can look at your finances and find out the maximum amount to lend you. It also allows the lender to see what interest rate they will charge you. With a pre-approval you can know the maximum amount of a mortgage you could qualify for, your estimated payments, and lock in an interest rate for 60 to days, depending on the lender.
Keep in mind that the pre-approval amount you get is the maximum amount that you could borrow. However, it is not a guarantee that you will get a mortgage loan for the maximum amount stated in your pre-approval. Before a lender gives you a pre-approval, they will look at your current assets, income, and level of need.
You may also have to provide the following:. Some lenders may give you a written confirmation or a certificate of pre-approval. A pre-approval will help in your mortgage approval process. Develop and improve products. List of Partners vendors.
Shopping for a home may be exciting and fun, but serious homebuyers need to start the process in a lender's office, not at an open house.
Most sellers expect buyers to have a pre-approval letter and will be more willing to negotiate with those who prove that they can obtain financing. Potential buyers need to show documentation to prove their assets and income, good credit, employment verification, among other documentation to be pre-approved for a mortgage.
A mortgage pre-qualification can be useful as an estimate of how much someone can afford to spend on a home, but a pre-approval is much more valuable.
It means the lender has checked the potential buyer's credit and verified the documentation to approve a specific loan amount the approval usually lasts for a particular period, such as 60 to 90 days. Potential buyers benefit in several ways by consulting with a lender and obtaining a pre-approval letter.
First, they have an opportunity to discuss loan options and budgeting with the lender. Second, the lender will check the buyer's credit and unearth any problems.
The homebuyer will also learn the maximum amount they can borrow, which will help set the price range. Using a mortgage calculator is a good resource to budget the costs.
Final loan approval occurs when the buyer has an appraisal done and the loan is applied to a property.
Potential buyers should be careful to assess their comfort level with a given house payment rather than immediately aiming for the top of their spending limit.
To get pre-approved for a mortgage, you'll need five things—proof of assets and income, good credit, employment verification, and other types of documentation your lender may require. Here is a detailed look at what you need to know to assemble the information below and be ready for the pre-approval process:.
Buyers generally must produce W-2 wage statements from the past two years, recent pay stubs that show income as well as year-to-date income, proof of any additional income such as alimony or bonuses, and the two most recent years' tax returns. The borrower needs bank statements and investment account statements to prove that they have funds for the down payment and closing costs , as well as cash reserves. The down payment, expressed as a percentage of the selling price, varies by loan type.
In addition to the down payment, pre-approval is also based on the buyer's FICO credit score , debt-to-income ratio DTI , and other factors, depending on the type of loan. All but jumbo loans conform to government-sponsored enterprise Fannie Mae and Freddie Mac guidelines. Veterans Affairs VA loans , which require no money down, are for U. A buyer who receives money from a friend or relative to assist with the down payment may need a gift letter to prove that the funds are not a loan.
Most lenders require a FICO score of or higher to approve a conventional loan , and some even require that score for a Federal Housing Administration loan. Lenders typically reserve the lowest interest rates for customers with a credit score of or higher.
FHA guidelines allow approved borrowers with a score of or higher to pay as little as 3. Those with lower scores must make a larger down payment. Lenders will often work with borrowers with a low or moderately low credit score and suggest ways to improve their score. The process for getting pre-approved outlined below involves submitting a set of standard financial documents, but the specific requirements and expiration dates can vary from lender to lender.
Most mortgage pre-approvals are valid for days and then after this window ends, your pre-approval letter will expire. Keep in mind that some lenders do a hard credit check when evaluating your financial background, which can trigger a dip in your credit score. Lenders are also required to re-verify your finances before finalizing your mortgage. The final loan amount of your mortgage will be determined by a more extensive review and underwriting process.
Avoiding big credit card purchases, changing jobs, and making any significant reductions to your savings or other major assets can help avoid last-minute surprises. Mortgage pre-approval confirms your creditworthiness for a home loan. A mortgage pre-approval is different from a mortgage prequalification :.
Some of the benefits of getting a mortgage pre-approval include:. How long it takes to get a pre-approval depends on the situation and lender. In general, lenders require certain documents to verify your finances — such as your W-2s and bank statements — as well as identification and employment verification. Having all of the required documents on hand before you start can also help speed up the process.
Get Pre-Approved Keep in mind that not all loan products are available through Credible. To get an idea of your financial situation and determine if you meet all the requirements, a loan officer will comb through several pre-approval documents , including:.
Credible offers a streamlined pre-approval process that allows you to secure a pre-approval letter from multiple lenders at once.
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