If you're looking to buy a home, you'll likely need to qualify for a mortgage to pull that purchase off. But before you apply for an actual mortgage, it pays to get pre-approved.
A mortgage pre-approval may help you determine whether you're in a strong enough position to buy a home, as well as how much money you can borrow.
Our form below will guide you through each step of the process.
A mortgage pre-approval letter is a document from a lender indicating that you have the financial means to qualify for a certain mortgage amount. Getting pre-approved for a mortgage shows that you're serious about buying a home and that you can afford it. Both are important to sellers, and if you're looking to buy in a competitive market, pre-approval could spell the difference between having an offer accepted or not.
As soon as you are serious about buying a home, you should get pre-approved for a mortgage. It's fine to do some preliminary house hunting beforehand, but you should get your mortgage pre-approved before you sink a lot of time into looking at homes in person, or even online. If you have a good idea of what you're looking for and think you'll want to make an offer within the next month or two, it makes sense to get a pre-approval letter.
Fortunately, the pre-approval process is fairly simple, and it may also save you some of the legwork involved in getting an actual mortgage. You'll need to provide the lender with certain documentation, including:
Your lender will use that information, coupled with the details it pulls from your credit report, to determine what mortgage amount you may qualify for.
A mortgage pre-approval letter is generally valid for 30 to 90 days, and it's common for these letters to include a specific expiration date. As such, it doesn't pay to get a pre-approval letter until you're really ready to start looking at homes and potentially make an offer on one.
Just as it's a good idea to shop around for the best mortgage lenders for your actual mortgage, it also makes sense to get pre-approved by more than one lender. Different lenders have different standards and guidelines when determining mortgage eligibility. Getting pre-approval from multiple lenders means you'll be able to choose the offer that works best for you.
You might assume that if a lender has given you a mortgage pre-approval letter, you're guaranteed to get a home loan. Not so.
The pre-approval process is just a preliminary review of your qualifications to take out a mortgage, but it doesn't guarantee that you'll ultimately get a home loan. The reason? Your financial circumstances could change between when you seek pre-approval and when you actually apply for a mortgage.
Imagine you're gainfully employed when your pre-approval letter is issued, but you don't apply for an actual mortgage for another 90 days. If, during that time, you lose your job or your income drops, your lender is unlikely to approve you for the same mortgage amount -- or any mortgage at all. Similarly, if you take on additional debt between the time of your pre-approval and your actual mortgage application, your lender may hesitate to grant you a home loan.
Furthermore, lenders' loan requirements occasionally change. Perhaps your credit score was deemed acceptable at the time you sought pre-approval, but now your lender requires a higher score. Even though nothing changed on your part, that change in guidelines could mean your mortgage application is denied.
Another important thing to keep in mind: You may hear the terms "mortgage pre-qualification" and "mortgage pre-approval" used interchangeably, but they're a bit different. Though neither guarantees actual mortgage approval, the pre-approval process is far more involved than pre-qualification, requiring you to submit thorough financial documentation so a lender can determine your eligibility for a mortgage. With pre-qualification, you provide less financial information, and the process is less formal. As such, pre-approval carries more weight than pre-qualification and is the better option if you want to present yourself as a serious buyer.
When you seek out mortgage pre-approval, your lender will ask to review your credit report to make sure there are no financial red flags. This is known as a hard inquiry, and it could lower your credit score slightly. However, the credit bureaus that determine your score recognize the need to shop around. Therefore if you seek pre-approval from multiple lenders within a short time frame (specifically, within 30 to 45 days), all those inquiries will only count as a single inquiry in the credit bureaus' eyes. That means your credit score won't take multiple hits.
Getting pre-approved for a mortgage sends the message that you're a serious buyer with the finances to back up any offer you make on a home. It could also help you approach your home search more strategically, as it you'll have a clearer idea of what you can afford. But be careful: While it pays to get pre-approved for a mortgage, you must first assess your finances to see if you're ready. If your credit score needs work, or your job isn't steady, you're generally better off fixing those issues first and then requesting mortgage pre-approval.
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