With all the open houses, offers, and counteroffers, the process of being a first-time homebuyer can be a bit overwhelming. Make the process easier by seeking home loan pre-approval. With home loan pre-approval, you can have a clear understanding of your budget. You can also can gain a competitive advantage, getting one step closer to homeownership.
What is home loan pre-approval?
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. This includes estimated monthly payments and interest rate. It's incredibly helpful when it comes to 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. Prior to finishing your application, your lender can give you an idea of what you may qualify for. You can receive a more specific amount once your lender understands your credit, income, assets, and liabilities.
How do I get pre-approved for a home loan?
The initial criterion for all borrowers is the same. Expect to share:
- 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
Next, our salary-based mortgage consultants check your credit score, income statements, and verify your employment. Once you've satisfied the necessary conditions, you are pre-approved for a home loan. You'll even receive a pre-approval letter that includes the loan type, amount, and qualified interest rate.
What if I'm self-employed?
Even if you're self-employed, you can get pre-approved for a home loan. Criteria will differ since you don't have access to W2's, but you have access to the same loan programs as traditional borrowers. Be prepared for extra paperwork, though. And, be sure you can present balance sheets, tax returns, and other information about your business.
Get pre-approved 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
What if I only work part-time?
Borrowers who work part-time jobs can use that income in their mortgage application. The process will remain the same, though you may need to provide extra documentation. Most lenders need enough information to help determine stable income before they can help you get pre-approved for a home loan.
Can I find a home before I'm pre-approved?
You may prefer to look for a home before getting pre-approved for a home loan. That's perfectly fine. However, we always suggest borrowers get their financing lined up prior to searching for a home. A lot of customers want to make an offer on a home but are not approved. It makes it very hard to compete. The best thing to do is get an approval going 30-60 days prior to shopping. That way any potential issues can be addressed before going under contract. Keep in mind your pre-approval generally lasts between 60 and 90 days.
As importantly, real estate agents prefer showing homes to buyers with a pre-approval letter because it ensures that no one involved is going to end up wasting their time.
What happens after home loan pre-approval?
After getting pre-approved for a home loan, the lender will need to understand more about the property you wish you buy. They'll also need to obtain documentation about your personal finances. This is where you get into the loan application process.
At this time, the lender should strive to lock in the best rate on your loan possible. After the rate lock, the property is appraised to determine its full value. By assessing the home value and surrounding sale prices of comparable houses, the lender can understand what loan program will best suit your needs.
From there, you'll need to make a down payment to show you have some investment in the home. Be prepared to show a paper trail sourcing your down payment funds.
After meeting all conditions, title work is prepared. This includes a title exam to ensure the property title is clear. Depending on your loan program, closing costs such as application fees and insurance will be included. Finally, the buyer and seller sign the title together (as part of the title transfer process), and you receive the keys to your new home.
