Why and How You Should Get a Mortgage Pre-Approval

Getting pre-approved for a mortgage is a crucial step in buying a home. In simple terms, it’s a process where homebuyers consult with lenders to verify their ability to apply for a loan and at what terms.

Read on to learn why this step matters and how to get it done.

Why a mortgage pre-approval is important when buying a home

• It gives you an accurate estimate of your financial capacity

  Your pre-approval letter indicates the mortgage size and terms that you qualify for, based on your financial records. With this knowledge, you can keep your shopping options manageable and reasonable.

  For example, you’ll know better than to waste your time targeting an $800,000 home when your pre-approval amount is only $600,000.

• It can help you improve a poor credit rating

  A loan pre-approval is a reality check of sorts, especially if your spending and/or saving habits are less than ideal.

  The sooner you have it done, the sooner you can get your finances back on the right track. If a loan advisor finds red flags in your credentials, they can point out the root causes behind them and give you clear and practical advice for fixing them.

• It gives you the upper hand in a competitive market

  When pitching to a seller, pre-approval can spell the difference between a compelling offer and a weak one. While not a guarantee that you’ll get the home, your pre-approval letter is evidence that you can afford to pay for the property.

Tips on getting a mortgage pre-approval

• Review your credit score

  Request a free credit report on state-approved AnnualCreditReport.com. Check for any errors and discrepancies and report them accordingly.

• Prepare and make copies of the required documents

  In addition to valid identification, here are the financial documents that you’ll need to submit:

  • Two most recent federal and state tax returns
  • Two years of W-2 forms
  • Two most recent pay stubs that show your year-to-date income
  • Statements that show your asset accounts, including savings, checking, Certificates of Deposit, individual retirement accounts, and investments
  • Records on other property you own
  • Records showing where you lived for the past two years and your landlord’s contact information
• Work on raising your credit score before applying

Lenders gauge your credit-worthiness based on the following:

• Excellent Credit: 750+
• Good: 700-749
• Fair: 650-699
• Poor: 600-649
• Bad: below 600

If you need to improve your credit score, you can:

• Pay off outstanding credit card balances
• Pay off other large, outstanding debts to lower your debt-to-income ratio
• Make it a habit to pay your bills on time
• Leave old debt on record, especially payments completed on time
• Mind the timing of your pre-approval request

Pre-approval letters are typically valid for up to 90 days. Be sure to complete a strong offer package within this time. Otherwise, you may have to repeat the application process.

• Request an adjusted pre-approval letter, if applicable

If the house you want to buy is priced lower than your spending capacity, ask your lender to write a lower amount in the letter. This helps you avoid having the seller negotiate for a higher sale price because of a higher borrowing capacity.

• Compare lenders

  Mortgage rates and terms vary among different lending institutions. Even the quality of customer service can affect your overall home buying experience. That’s why it pays to shop around. Limit your applications to three lenders so that you don’t spend too much time and money on this step.

  Need help with your mortgage pre-approval? Sonoma County real estate specialist Brad Wilkinson will connect you to your area’s most reliable and favorable lenders. He can also guide you through the detailed loan terms so you’ll know what to expect from your mortgage.

For more inquiries, call 707-799-0455 or send an email to Brad(dotted)Wilkinson(at)CBNorcal(dotted)com today.

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