When you are purchasing a home, your Realtor may recommend you obtain a mortgage pre-approval prior to looking for a new home.
There are significant benefits to being pre-approved before you find a home; however, often people confuse pre-qualifications with pre-approvals.
So what exactly is a mortgage pre-approval?
In a nutshell, it’s when the lender provides you (the buyer) with a letter stating that you have been approved up to a specific purchase price. The letter will also state that your income, assets and credit have all been verified. Often a specified down payment and loan program will also be included in the letter but this is not necessarily required.
What Needs To Be Provided For Pre-Approval?
In order to obtain a pre-approval for your home purchase, you will need to complete a full loan application and submit all the requested income and asset verification documents.
Every borrower is unique, but this generally means you will provide documents such as W-2’s and tax returns for two years, paystubs covering the past 30 days, bank statements and possibly other documents that proving your net worth.
Can Things Change Once I am Preapproved?
Generally speaking, a preapproval does have some caveats attached to it. Typically, you can expect to see some of the following clauses in a preapproval letter:
- Interest Rate Changes – a preapproval is done based on current interest rates. When rates increase, your borrowing power may decrease.
- Property Passes Inspection – your lender will require the property you ultimately purchase to come in with a proper appraisal and meet all inspection requirements.
- Changes to Your Credit or Debt – Even after you have mortgage preapproval you should expect your credit to be checked again. Make sure you continue to make payments on-time and don’t add any new debt without speaking with your lender first.
- Changes In Jobs/Assets – after a preapproval is received, a change in your employment status or any assets may result in the preapproval becoming worthless.
Getting preapproved for a home mortgage will give you more negotiation power with sellers and may help streamline the entire loan process; however, in today’s real estate market a preapproval letter is seen more like a right of entry vs. an added bonus. Many sellers will not accept offers unless a preapproval letter is included and many Realtors will not show homes unless their client has first been preapproved.
It is helpful to start the process early with your potential mortgage provider. The last thing you want is to find your dream home and be stuck scrambling to get pre-approved. Preapproval is a free service for most mortgage companies and an important part of purchasing your dream home. For a free preapproval contact Sammamish Mortgage at 425-401-8787 today.