If you’re considering purchasing a home, you’re likely to be asked “have you been pre-approved?” For some, the answer is an easy “yes.” However, for others, it may leave you wondering what the fuss is about – especially if you’re in the “looking” phase. So, why would you want to get a pre-approval letter for mortgage?
First, let’s clear up the misconceptions about what pre-approval is, and isn’t, by looking at the differences between these pre-qualification, pre-approval, and approval:
Pre-Qualified vs. Pre-Approved vs. Approved
Think of these three as steps towards home ownership, each with an increasing level of weight to your home purchasing power.
The first step is to say “if these things are accurate,” you could get approved for a certain amount; this is the pre-qualification. The second step is to verify the accuracy of your documentation and get official documentation that “these are accurate” and “you are likely to get approved” for a certain amount; this is the pre-approval.
Where the rubber hits the road (or in this case, the stairwell) is when an underwriter is brought in, which allows these steps to move into the approval phase. Prior to the introduction of an underwriter, the documents were created by a loan officer and while the pre-approval showed a high level of promise, there is no guarantee until the approval is complete.
Now, why would you want to get to that 2nd step before looking at homes?
Four Reasons Why You Should Get a Pre-Approval Letter for Mortgage:
1. Getting pre-approved shows you what homes you might view. If you have a pre-approval letter for mortgage that states you’re eligible for homes up to $320,000, you can narrow your search so that you do not fall in love with a home in the $500,000 range. It also allows you to see that you don’t have to settle for less home than is right for your family.
2. Getting pre-approved reveals to a seller that you’re mortgageable. Imagine finding the home of your dreams at the right price point; everything seems perfect. But then you learn that the home has other potential buyers. Having a pre-approval letter for mortgage shows the seller that a bank will consider offering you a mortgage, which means that there’s less likelihood of problems – giving you an advantage over those who do not bring one.
3. Getting pre-approved lets you know if you’re mortgageable. You may wonder “if I’m just trying to see how much home I might qualify for, why would I want to go through the whole pre-approval process?” Aside from discerning what you can afford in a mortgage situation, the pre-qualification can also ensure there aren’t other factors that can disqualify you form obtaining a mortgage. Knowing that you do qualify and how much can give you a lot of peace of mind when you find that dream home.
4. Getting pre-approved also enables you to move more quickly when you find the perfect place. When you find that home and make an offer, you’ll save time because your offer won’t be contingent on obtaining financing. This connects back to showing the seller that you’re serious about this home purchase and are ready to move forward quickly.
Moving forward: what you’ll need for pre-approval
Since a pre-approval of mortgage letter is written based on documentation, you’ll need those documents to receive the letter. Here’s what you’ll need: two years of W-2 forms (or, if you’re self-employed, your profit-and-loss statements), recent pay stubs from your current job, three months of bank statements, and two years of tax returns.
Once you have a pre-approval letter for mortgage
Once you’re ready to start seriously searching, our site liveportlandmetro.com offers full access to the MLS or call us directly for an all-access view to area homes that meet your specific search criteria: 503-406-5232.
*images from freedigitalphotos.net