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Get Pre-Qualified and Pre-Approved Before You Even Begin Your Home Buying Process

By Eleanor Boschert

Let's face it, securing a mortgage loan is no easy feat. You have to shop around for a lender, get your financial house in order, and go through a lengthy process - just to get pre-approved! But, before you even begin house hunting, get pre-approved. It is essential to getting the house you want.

Although you aren't required to get prequalified or pre-approved for a mortgage loan, it certainly gives you a competitive advantage. Getting a copy of that pre-approval letter signifies to sellers that a lender has vetted your financial status and credit history and given you preliminary approval for a loan. And, it gives you an idea of how much you can borrow and how much house you can afford.

So, what's the difference between pre-qualified and pre-approved? Getting pre-qualified is the first step along the way. It is a lender's quick estimate on how much you can borrow for how much of a house. This can often be done over the phone.

Going one step further, pre-approval is a firmer, and more formal, commitment from a lender. They've checked your credit and reviewed your financials. They may have asked you for an application fee or charged you to obtain your credit report. This can be done online or in person with a mortgage broker or lender. They are looking to see if you have the resources and assets to actually purchase a home.

Either way, getting pre-qualified or pre-approved doesn't constitute a mortgage loan approval. It is a preliminary review. A lender will need to conduct a comprehensive analysis of your credit history, income, debts and evaluate what home you decide upon for final approval. Each lender will have their own criteria for what the pre-approval process entails, but typically, you will need to start with the following documentation:

  • Proof of Sufficient Funds: Two or three months of the most recent bank statements for all your accounts (checking, savings, etc.)
  • Proof of Income: Most recent W-2 form, or if you're self-employed, two year's of tax returns
  • Proof of Investments: Stocks, mutual funds, etc., IRA, or retirement accounts
  • Credit Information: Credit report, existing loans -- car, house, student
  • Driver's License
  • Verification of Place of Residence
  • Gift Letter: If applicable, proof you are receiving a gift, not loan, for down payment purposes
  • Proof of Income: Last two pay stubs

Once you have provided all the documentation to the lender, they will determine how much they will be willing to lend you. They are required by law to provide a Good Faith Estimate within three days of applying for a loan, spelling out terms, rates, closing costs, and all fees.

Just because a lender pre-approves you doesn't mean you have to borrow from them. If you feel you want to look around further, then do it. It will be time consuming, but you can always go through the process with another lender. You ultimately want to get the best loan, terms, and commitment to fit your needs. Know that, pre-approval letters are only valid for anywhere from 30-120 days. This protects lenders if your financial situation should change during this time.

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