Introduction
Buying a home is an exciting milestone, but it can also be a stressful and overwhelming process. The first step in the home buying process is getting pre-approved.
Pre-approval can give you a clear idea of what you can afford, help you to narrow down your search for a home, and make you a more competitive buyer in a hot housing market.
However, it’s important to keep in mind that there are several key factors to consider when applying for pre-approval. In this post, we’ll cover some of the most important things to keep in mind when getting pre-approved.
Know Your Budget
When working with a loan officer for pre-approval, it’s important to know how much you can comfortably spend on a home. One thing that loan officers do not normally do, is take a holistic approach to your budget. Consider your income, expenses, and debts, and determine what monthly payment you could take on while being comfortable. Make sure you budget for a 10% increase due to a miscalculation by the loan officer or title company on things such as property tax and home owners insurance.
Shop Around
Not all loan officers are created equal, so it’s a good idea to compare your experience and the general pricing from multiple lenders. This can help you to find the best deal and ensure that you’re getting pre-approved for a loan that fits your needs and budget.
Keep in mind that shopping for exact numbers at the pre-approval stage is very dangerous. You’re playing a game of who’s the biggest liar. You should primarily be shopping for the most transparent and trustworthy.
Sometimes the rates will be massively different which is why getting more than one opinion can be good but there’s nothing wrong with sticking with the first person you talk to if it’s in your budget and they are providing a smooth experience.
Gather Documentation
To get pre-approved for a mortgage, it’s best to provide documentation of your income, employment, and financial assets. Common documents include:
- most recent pay stub
- last two years of W-2s
- last two months of bank statements ( un-altered)
There can be plenty of other documents requested for other income types so it’s best to know how to access those documents.
Avoid Major Changes
Once you’ve started the pre-approval process, it’s important to avoid making major changes to your financial situation. This includes avoiding new lines of credit, taking on additional debt, or changing jobs. These changes can affect your credit score and debt-to-income ratio, which can impact your ability to get pre-approved.
If you change jobs or are going to be taking on new debt that isn’t currently on the credit report, make sure you explain that to the loan officer. There are plenty of ways to account for that information.
Understand the Timing and Variation
When you receive a pre-approval letter from a lender, make sure you understand that it’s based on the market at that time. It’s smart to ask your loan officer for a range of what could happen as the market fluctuates and you look at homes. Make sure your loan officer is also aware of the types of homes your looking at as condo’s or multi family can drastically change the pricing.
Keep in Mind that Pre-Approval is not a Guarantee
Pre-approval is not a guarantee that you will ultimately be approved for a mortgage loan. The lender will still need to review your application and financial documents before making a final decision. Additionally, pre-approval letters usually have an expiration date, so it’s important to keep this in mind when shopping for homes.
Even a “Verified Approval” is not always accurate so understand that mistakes can be made and a problem solving mindset will sometimes be needed.
This is one of the many reasons why it’s important to find a very high level and trustworthy loan officer that’s closed loans similar to your scenario.
Conclusion
getting pre-approved for a mortgage loan is an important step in the home buying process. By keeping these key factors in mind, you can help to ensure a smoother and more successful pre-approval process. With the right preparation and mindset, getting pre-approved for a mortgage loan can help you to achieve your goal of buying a new home.
