If you’re a first time home buyer, getting pre-approved for a home loan can be a great advantage to you as you start the journey searching for your very first house. Mortgage pre-approval is simply the process that a lender takes to ensure you can qualify for a home loan. However, it is important to note that a pre-approval for a home loan is not a guarantee. By working with a qualified mortgage lender, you can get a “snapshot” of your financial standing and actually pre-qualify you for a home loan. This pre-qualification states how much you can afford to spend on a home loan. First-time homebuyers can take this pre-approval to their real estate agent as they go searching for homes, so they have an idea of what is in their budget.
At The Reichert Mortgage Team, we want to inform first time home buyers of the mortgage pre-approval process and how you can secure a home loan. We love the community of Colorado Springs and we are in this industry to help first-time homebuyers thrive. That’s why we are creating the First Time Home Buyer series. In this third step, we explain everything you need to know about getting pre-approved for a mortgage.
Mortgage Pre-Approval Process
The first thing to remember is that a pre-approval is not a guarantee. The overall goal for the lender during the mortgage pre-approval process is to scrutinize your assets and debts to determine your eligibility as a borrower. Once your mortgage lender determines your eligibility, they will outline how much you are pre-qualified to borrow. It is best to gather all documents you will need for the pre-approval process in advance to ensure information doesn’t change and you don’t need to start over. Your lender will provide you with a specific list of documents, but as a first time home buyer, it is nice to know what you may need before jumping into this process.
Why Get Preapproved For A Mortgage
You should get pre-approved for a mortgage because it makes the home buying process easier. Following the mortgage pre-approval process, you will know exactly what amount you are qualified for. This will narrow your search and allow you to make effective decisions and offers. Once you find a home that you want to buy you will be able to make an offer based on your pre-approved amount and the listing price of the home. A mortgage broker will assist you in assessing the amount you can afford. Sometimes future homeowners can overlook what it takes to buy a home causing them to have higher expectations than possible. Talking to a skilled mortgage broker will assist you in making an informed decision.
Preapproval Vs. Prequalification
A pre-qualification is effectively a preliminary pre-approval. In most cases, the mortgage broker will quickly qualify you for an estimated loan amount without taking a deep dive into your finances. Most of the time the lender will not even pull a credit report for this type of pre-approval which means that this is not as accurate as a pre-approval. However, it is quicker and will allow you to make an offer sooner.
Rather than an estimate, a pre-approval will provide you with a specific range or number that you are pre-approved for. Therefore pre-approvals are a more in-depth evaluation of your financial situation where the mortgage lender will determine your creditworthiness and risk to the lender. The mortgage lender will assess your debt through a credit check, they will examine your finances and your ability to pay the loan back, then they will have a full understanding of how much you can spend on your home.
Documents Needed For Mortgage Pre-Approval
- Social security card to verify identity, tax returns, and credit reports
- Proof of employment and employer contacts for the past few years
- Proof of income including multiple pay stubs, year-to-date income information, and tax records. If you’re self-employed, this may include P&L statements, balance sheets, and tax documents
- Tax documents including W2s from the past two years
- Bank account information to check on cash reserves and ensure you have enough for the down payment
- Credit information to measure the debt-to-income ratio
- Gift letters if your family is planning on providing a gift without expectation of repayment to help pay for your home, then the lender will need verification
- Monthly Expenses documents can include an itemized list of expenses for each month
When To Get Preapproved For A Mortgage
The best time to get pre-approved for a mortgage is as soon as you start your home buying process. If you want to be on top of your game apply for pre-approval before you begin shopping for homes. This will ensure that if you fall in love with a home you will be able to make an offer. If you are ready to buy a home get pre-approved with The Reichert Mortgage Team so you have a full picture of your options as well as show realtors that you are a serious buyer.
How Long Does a Pre Approval Last
Generally, a mortgage pre-approval will last 60-90 days. Since we have learned that a mortgage pre-approval is based on your creditworthiness, income, interest rate, and much more. All of these things are volatile and can change over time based on your spending habits. Because of this, a letter of pre-approval will have a finite life and after this period of time, you will need to acquire another letter from your lender.
Next Steps After Mortgage Pre-Approval
Once you are pre-approved for a home loan, it is time to move quickly on the home buying process while maintaining your current financial standings. It is possible to be denied for a mortgage after you are pre-approved, so keep things consistent financially while shopping for your first home.
Avoid Mortgage Denial After Pre-Approval
Unfortunately, it is absolutely possible to be denied for a mortgage after being pre-approved. With any financial missteps or significant lifestyle changes, even positive ones, lenders can deny your eligibility for a home loan. It’s vital to understand the importance of consistency between the time that you apply for a home loan and when you are handed the keys. Home lenders are looking for consistency in your income, job status, assets, debt-to-income ratio, and credit score. It’s best to be on the best financial behavior of your life during this time so you don’t raise any red flags. Avoid big purchases and consider your assets and spending ability frozen during this time.
Reasons for Losing Mortgage Approval
- Credit score decreases
- Changes in job
- Fewer assets
- You obtain new debt
- You apply for new credit cards
- Income decrease
- Job loss
Using your pre-approval papers to know what you can afford, start narrowing down homes, connect with a real estate agent, and talk to sellers. Fortunately, there are many excellent resources to help you find the perfect neighborhood in Colorado Springs. When you choose a home, you need to act quickly to meet deadlines. It is important to be efficient when delivering documents to the underwriter you are working with so you don’t lose the bid on the home.
How To Bid On A House And Win
Remember that the time it takes to secure a home impacts your pre-approval, so it’s important to be prepared and move quickly. Depending on your financial circumstances including income and debt ratio as well as the current real estate market, lenders will offer a time frame for you to find and secure a home with the terms of your pre-approval. If you can’t make an offer on a home in the time frame allotted by your lender, then the entire pre-approval process may start again.
The time of year also matters not only in terms of how the market is changing and what homes are available, but if you’re in the middle of this process in April, you will need to provide new tax documents. If your income varies from the tax documents used to initially secure the pre-approval, then the pre-approval may be lost. Talk to your lender about various factors and what specific deadlines you are expected to meet.
Wait for Final Approval
In order to be clear to close on your new home, the underwriter will work through your application and then the lender will verify the credit score, debt ratio, income, and assets presented in your pre-approval. Once the home is appraised, adjustments are made, and the title is cleared of any unresolved liens, then you will be able to close on your new home. Remember that lenders can pull credit and re-verify income at any point in the process, so be consistent with your finances. If a major life change or emergency impacts your financial situation, then talk to your lender about how it may impact your pre-approval.
Questions To Ask When Getting Pre-Approved For A Mortgage? | The Reichert Mortgage Team
At the Reichert Mortgage Team, there is nothing better than connecting deserving families and individuals with a safe home to call their own. In order to do so, it is important that home buyers are educated on every step of the process and prepared to make the best financial choices in order to accomplish this goal. If you have any questions about the mortgage pre-approval or how a life change may impact your home loan eligibility, then give us a call. Our mission is to make real connections with members of our community, so our team will always take the time to listen and fully understand your situation, especially as first-time homebuyers. For any questions or concerns, feel free to contact us at The Reichert Mortgage Team.