Pre-approval is important if you want to stand out from all other home buyers. It tells the buyer that you are ready and willing to do business. A pre-approval means that which ever lender you have chosen has guaranteed to give you a home loan before you’ve even seen or submitted an offer on a home! Granted, the pre-approval process may be a whole lot of prep work, but here’s why mortgage pre-approval matters so much, and how it gives you the upper hand when looking for a home.
Mortgage pre-approval? What is that?
Mortgage pre-approval is a commitment from your lending institute to solidify you with the home financing you need. The loan approval amount can very and will based on the number of factors including how much money you have saved, credit standings, employment length, and other information.
What is needed to get pre-approved?
The paperwork you need is sometimes referred to as your “Green File.” What is included in this “Green File” you ask? Generally, the paperwork you’ll need for the approval process can include the following:
- You will need at least the past 2 to 4 pay stubs showing your year-to-date income
- The past two years worth of federal tax returns
- W2 forms for all employers for the last two years
- 2 months worth of statements from all institutes and assets, this includes checking, savings, investment accounts, CDs, IRAs, and stocks or bonds
- Do you own other investment properties? This will also be needed
- Did you live at home or rent and apartment. you will need to show this as well as provide contact info for landlord
Pre-approval vs. pre-qualification: What’s the difference?
Pre-approval, on the other hand, means the lender has taken the steps needed to verify how much they can and will lend you. You also get an official letter from the lender that verifies that approval amount. Many home sellers want to see that letter in the offer submission process. This ensures a better chance at you getting the bid over others.
How does pre-approval help when buying a home?
if you are selling you home, your objective is to complete the transaction and get paid for the sale of your home. By accepting an offer that has not been pre approved, you are at the mercy of the ability of the buyer to qualify for the loan. this can hold up and delay this process a lot. If the loan doesn’t get approved, the buyer can’t buy and the home is placed back onto the market.
When a buyer comes in with a pre-approval in hand. It provides an extra level of security for the seller. It tells the seller that the buyer is just as willing to make a deal. Put yourself in the sellers shoes. If you had to choose between someone who had to get approval still, or someone that is ready to finalize today, which would you do? no hoping and praying the deal goes through.
The bottom line really is this: The pre-approval may be a pain, and sure you will have to provide all that paperwork sooner or later anyway. Why not do it at the beginning before you start to look, so you know what expectations you have and what you can afford with confidence?