How to Get Pre-approved for a Home Loan

The process of being a first-time home buyer can be a bit overwhelming. Make the process easier by seeking home loan pre-approval.

What does a pre-approved home loan mean?

Mortgage pre-approval is an official approval noting the amount available to borrow. There are no obligations attached. Rather, it gives you (the buyer) a better understanding of the money you’re qualified to receive, including estimated monthly payments and interest rate. Best of all, pre-approving a loan can help with budgeting, so you’re not looking at homes you can’t afford.

How does pre-approval differ from pre-qualification?

Mortgage pre-approval follows pre-qualification. As you begin the home loan process, and prior to finishing your application, your mortgage lender can give you an idea of what you may qualify for. It’s an “unofficial estimate” of what you can borrow. However, once your lender understands your credit, income, assets, and liabilities, they can give you a much more specific amount that you are pre-approved to borrow.

What is the pre-approved home loan process?

American Financing has a comprehensive loan approval process to ensure you’re qualified for the loan you’re approved for. So, you can walk into any negotiation knowing how much money you have to work with.

The initial criterion for all borrowers is the same. We’ll ask to see:

  • Past employment history
  • 30 days of the most recent pay stubs
  • Your last two bank statements
  • W2 tax returns for the last two years
  • Your insurance contact information
  • Outstanding debt values

Once we have this information, our mortgage consultants are able to check your credit score, income statements, and verify your employment. Once you have satisfied the necessary conditions, you are able to receive a pre-approval letter. Your pre-approval letter usually includes the type of loan, the loan amount, and the qualified interest rate.

Does the process differ if I am self-employed?

It doesn’t. Criteria will differ since you don’t have access to W2’s, but you’ll still have access to the same loan programs as traditional borrowers. Be prepared for potential extra paperwork, though. And, be sure you can present balance sheets, tax returns, and other information about your business.

Make yourself a more attractive loan candidate by following these strategies from Penny Mac:

  • Register your business
  • Pay off as much debt as possible
  • Save enough money to put down a sizable down payment
  • Separate your business and personal bank accounts
  • Maintain clean and accurate business records

Does the process differ if I only work part-time?

Potential borrowers who work one or more part-time jobs can use that income in their mortgage applications. The process will remain the same, only you will likely need to provide extra documentation. Most lenders need enough information to help determine stable income that will continue coming in, though each circumstance is different.

Why can’t I find a home first and then get mortgage approval?

Depending on your situation, you may opt to look for a home first, then determine your eligibility for a loan. However, we always suggest borrowers get their financing lined up and home loan pre-approved prior to searching for a home. A lot of customers call and say that they want to put an offer on a home, but are not approved. It makes it very hard to compete with other home buyers. The best thing to do is get an approval going 30-60 days prior to shopping. That way any potential issues can be addressed prior to going under contract.

As importantly, real estate agents prefer showing homes to buyers with a pre-approval letter, because it shows the buyer is financially capable of purchasing.

A pre-approved home loan gives buyers a distinct advantage. By putting in the time and doing the homework, it lets the selling agent and owners know that these first-time home buyers are serious. It ensures that no one involved is going to end up wasting their time, and buyers are able to shop as if they’re paying in cash.

What happens after receiving home loan pre-approval?

Your pre-approval generally lasts between 60 and 90 days.

After getting pre-approved to invest in a mortgage, the lender will need to understand more about the property you wish you buy and obtain documentation about your personal finances. This is part of the loan application process.

Next, the lender should strive to lock in the best rate on your loan possible. Rate locking requires the mortgage lender to offer a home at an agreed-upon rate regardless of whether mortgage rates change between when the loan is approved and the closing time. If you know which home you want to purchase then you want to lock in a rate as early as possible.

After your mortgage loan rate has been locked in, the property you want to purchase will need to be appraised to determine its full value. By assessing the value of the home and surrounding sale prices of comparable houses, the lender can understand what loan program will best suit your needs.

You’ll need to make a down payment on the home to show you have some investment in the home during the mortgage process. Be prepared: you may need to show a paper trail sourcing the money for your down payment. After the down payment is secured, the loan file is submitted to the lender and the loan is reviewed.

Finally, after all conditions of the mortgage approval are met, title work is prepared. This includes a title exam to ensure the title of the property is clear. It’s similar to the car-buying process where a title is needed in order to own big-purchase items. Depending on your mortgage loan program, closing costs such as application fees and insurance will be included. Then the buyer and seller sign the title together (as part of the title transfer process) and you receive the keys to your new home. How exciting!

So, whether you’re about to make an offer, or you’ve just started looking, a pre-approved home loan is an excellent choice for all home buyers. American Financing can work with you to get you the money you need so you can find your perfect home.

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