Understanding The Pre-Approval Process
Pre-approved financing makes it easier to get a loan - it simplifies and speeds up the process. Knowing that your financing is already approved will also make your offer more attractive to sellers. They will often accept a preapproved offer over a higher offer that isn’t already approved by the bank. Here’s some things you should know about the pre-approval process:
Know the difference between “preapproved” and “prequalified.” These two terms may sound similar, but they have important differences.
“Prequalified” means that you filed paperwork with a lender and received notification that you can later get a loan. You’re earlier in the financing stages. You haven’t received a loan if you’re prequalified.
“Preapproval” is taken more seriously than prequalification and brings you more advantages in the buying process. Taking the time in advance to get preapproved will be well worth it.
Gather documents. One of the most difficult parts of getting a preapproval is the large amount of paperwork it requires. You may be asked to submit the same documents multiple times, so be prepared and make copies.
Although it’s an annoyance, lenders require this documentation for preapprovals. Simply submitting your personal information, such as names and Social Security numbers, isn’t enough. You’ll have to fill in the details about your financial life.
The most common documents lenders request include credit reports, past tax returns, pay stubs, and driver’s licenses.
Lenders can also ask to see recent bank account statements, investment account statements, employment data, monthly expenses, and a list of assets. You may have to reveal how much you have in savings accounts, IRAs, stocks, bonds, and other assets.
In addition to your assets and employment, lenders want to know about your debt. They’ll ask about your current mortgages, student loans, credit cards, personal loans, and other debt.
Apply for preapproval. Each lender has its own preapproval process. Quickly providing the documentation they need speeds up the process. It’s important to provide accurate information because lenders will check it.
It can take a significant amount of time to hear back from some lenders.
Understand the preapproval rules. Although preapproval makes it easier to get a loan, it’s not a 100% guarantee that you’ll get one.
Lenders can still ask for more forms and documents. Things can come up or get brought to light that changes the decision. Your financial circumstances might change and disqualify you.
Use the preapproval letter to your advantage. Sellers are more likely to consider buyers who have preapproval letters. This is due to the fact that you’re ahead of other buyers who may not have started the lending process.
The preapproval process indicates that mortgage companies consider you a serious buyer who is capable of obtaining a house. It’s important that all sellers and your real estate agent are aware of the letter.
Maintaining a preapproval. Once you have obtained a preapproval, you want to maintain your status as a qualified buyer.
Refrain from opening new credit accounts or getting new debt. These types of changes are frowned upon by lenders and could jeopardize your ability to get a loan later.
Avoid taking major withdrawals from your assets. This will prevent lenders from worrying about your financial state. This isn’t the time for big vacations or other large purchases.
Preapproved financing takes time and effort to obtain, but it’s well worth it. Once you’re preapproved, take action quickly to find a house that you’d like to buy. Otherwise, as time passes, your financial situation can change and you may have to start all over in trying to qualify for a loan.