Now that you’ve begun the home-buying process, you have likely been advised by a friend or two that you should get pre-approved for a mortgage. Although this is not technically a required step in the home-buying process, it has so many benefits that not having one would only halt or prolong the process.
What’s the biggest and best reason for getting pre-approved for a mortgage? Most sellers won’t take you seriously until you can prove that you are financially prepared. Mortgage pre-approval is a set of documents from the lender stating that you are qualified to borrow a certain amount. The pre-approval also includes a pre-approved interest rate as well as a personalized pre-approval for a specific property if needed.
So if you’re wondering how to get pre-approved for a mortgage, this blog post outlines the main benefits as well as the steps in the process.
The Main Benefits of Getting Pre-Approved
Before getting pre-approved, you will go through a pre-qualification process that is an informal evaluation of your finances. From there, you can begin the pre-approval process and experience the following benefits:
- It gives you insight into your budget. Purchasing a home is a major investment, and since the majority of homebuyers aren’t paying for it up front, it’s a good idea to know your budgetary limits to give you a good idea of what you can afford. This includes your down payment and savings to ensure you can make the monthly mortgage payment.
- It makes you an attractive buyer. With a pre-approval, you are indicating to the seller that you’re a serious buyer with the means to back it up. It also tells the seller that you are less risky and less likely to drop out of a sale.
- It gives you room to negotiate. With pre-approval, you will have some flexibility with bargaining and negotiations. When a seller knows that a buyer is already qualified for the offer amount, the seller may be more likely to make compromises if they know the purchase is a sure thing.
- It might allow you to close faster. When you close on a home, the first thing that happens is securing financing, which you have already done with a pre-approval. Keep in mind that pre-approval does not guarantee that you will be approved for a mortgage, but it gives you the necessary edge you need.
So now that we know it’s a smart idea to get pre-approval, how do you go about obtaining it?
How to Get Pre-Approved for a Mortgage
Even before you begin looking for the perfect home, the first thing you will need to do is start by determining who you want to receive a loan from. You can receive mortgage pre-approval from up to three different potential lenders. Most experts recommend that you do so because it allows you to compare rates and select the option with the best lending terms.
Once you have determined who your pre-approved lenders will be, here are three steps of the process:
1. Provide personal information.
With your Social Security number and proof of identity, the lenders will run a credit check, which is necessary to give lenders insights into your debt-to-income ratio as well as your financial history. If you have recently changed your name, you will need to bring additional proof, including a marriage license or divorce certificate.
2. Provide income information.
To provide proof of income for the past two years to your lender, you will need to supply W-2s, alternate tax information, pay stubs, and any information related to sources of income.
3. Provide asset information.
You will also need to provide documentation related to assets outside of your income. This usually includes large monetary gifts or investments. Depending on how much the gifted fund is, you may need to provide a letter from the gifter if there are funds being put towards the purchase of your home.
Once this information is provided to the lender, the documentation will go to an underwriter who will determine the amount and which loan you qualify for.
Get Pre-Approved with a Customer-Obsessed Lender
Now that you know how to get pre-approved for a mortgage, you will want to partner with the right lender. When you work with a Loan Officer from radius financial group, your pre-approval mortgage process is guaranteed to be smooth and insightful.
For more information about the home-buying process, take a look at our mortgage preparedness guide and get the facts you need before you buy.