The Mortgage Pre-approval Advantage

Posted on Wednesday, June 23, 2021

So, you’ve decided to buy a new home. Have you been pre-approved for your mortgage? Whether you a first-time buyer or a veteran homeowner, pre-approval is an important first step. Not only does it tell Realtors and builders that you are serious about purchasing a home, but it can also give you a leg up in today’s competitive market.

Here’s what you need to know about getting pre-approved.

What is pre-approval?

Pre-approval is a document, usually a letter, outlining the type and amount of loan you qualify for. It is not a guarantee that you will be loaned the money. If certain conditions are not met or your financial situation changes, the offer can be withdrawn.

Why Should You Get Pre-approved?

A pre-approval letter demonstrates that you can afford to buy a home. It also tells you how much home you can afford. It simplifies the buying process because it helps weed out homes that are not in your price range. Without a pre-approval letter, the home you want might go to someone who is pre-approved.

How Do I Get Pre-approved?

There are a number of steps involved in the pre-approval process, but it boils down to giving your prospective lenders a lot of financial information.

Get pre-qualified. Pre-qualification is not the same thing as pre-approval. Pre-qualification is an informal process where you tell a lender about your financial situation. Based on what you say, the lender can estimate how much you might be able to borrow. However, this is not a firm offer. To get that, you will have to give your lender more in-depth information. The Pre-qualification Calculator from NerdWallet can help you do this online.

Do your own checks. A lender will order a credit check, but it never hurts to do so yourself. Order a free credit report to see what your score is. In general, a score of 740 or above will enable you to qualify for the best rates but you can qualify with a score as low as 620. It’s a good idea to go over your report to see if there are errors. Clearing those up before you apply for a loan will help move things along faster.

Calculate your debt-to-income ratio. This is the percentage of your gross monthly income used to pay credit card debt, student loans, car loans and any other revolving payments. Most lenders prefer to see a DTI of 36 percent or lower. This includes the estimated mortgage.

Gather your financial information. Lenders want to know everything about you, so prepare your financial information before loan shopping. Documents you will need include your W-2 tax forms, bank account information, any investments you have, proof of employment and proof of additional income sources. If you are self-employed, you will need to include your 1099s and your income tax returns. If you have a co-borrower, they will need to provide their financial information as well.

Shop lenders. Don’t go with the first lender you visit. Shop around. You may find that one lender can do more for you than another and save you thousands of dollars.

Once You Are Pre-approved

Once you have your pre-approval letter in hand, it’s time to go home shopping. We can’t think of a better place to do that than Balmoral. Visit our information center to learn more about our beautiful homes and fantastic lifestyle.




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