Being pre-approved for a mortgage isn’t just a way to get a step ahead, in many cases it’s a necessity to buying a home. Many sellers don’t want to go through the negotiation process of selling their home only to have the buyer drop out when they can’t get approval for the mortgage they were relying on.
The Difference Between Pre-Qualification And Pre-Approval
Pre-qualification is a faster process than pre-approval and is usually a best estimate based on how the borrower answers certain questions about their financial history and status.
Pre-approval is way more valuable to a borrower than pre-qualification because it is a commitment from a lender for a decided amount after they have completed an in-depth verification process based on the submitted documentation.
Preparing For The Pre-Approval Process
The majority of lenders will require the same documentation in order to pre-approve anybody for a mortgage, but there is more information they will need in certain cases.
Anybody applying for a pre-approval will need to ready at least two years’ worth of financial information, including W-2s, Form 1099s and federal tax returns as well as current banking and financial records.
Here is where the pre-approval process gets more in-depth, not only will the lender need to see how much money the applicant has in their bank, but they will need proof as to where the money came from. The lender will need to know the difference between income, gifts or investment withdrawals to help them make their decision.
Having this information ready in advance will speed up the process significantly.
Prepare Proof Of Assets And Allow A Credit Check
Applicants will be required to prove ownership of all assets and will need a letter to prove that any cash gifts given to them to assist with the payment are not loans that need to be paid back. This is important information that will help a lender make a decision, so having the letter ready will save a lot of time.
The lender will also need to check the applicant’s credit to compare it to the applicant’s income. Many people refuse the credit check because they are afraid it will impact their credit score, but the impact is very low and the lender needs this information. It is also a good way to learn about any errors in the credit report early, before they can pose a problem down the line.
The process is not nearly as intimidating as it appears, and an experienced real estate agent can help you prepare everything you need well in advance of applying for pre-approval.
The coronavirus pandemic has impacted everyone. For homeowners, they might be wondering how they are able to keep up with their mortgage in light of shelter in place orders, financial difficulties, and unemployment problems.
