If you are buying a home, you will almost certainly need to figure out how to get pre-approved for a mortgage. Here's how to do it.
Pre-approval means lenders have provided preliminary approval for a loan based on your specific circumstances. If you submit your pre-approval letter when you make an offer on a home, you'll be showing sellers that you can get financing. And your pre-approval enables you to know the terms of your loan before you commit to borrowing.
There are many things you need to do before you apply for a mortgage, and pre-approval is an important stage. The pre-approval process takes time and requires you to provide a lot of financial documentation. This step-by-step guide will help you understand exactly what's involved and make it easier for you to get your mortgage pre-approval.
Mortgage pre-approval is the process of getting a lender to approve you for a loan and set out specific details of the loan you qualify for. After you provide detailed financial information, your lender will offer a pre-approval to borrow up to a specific amount at a designated interest rate.
Final approval for your loan will be subject to verification that your financial circumstances haven't changed. The lender will also need an appraisal and other information about the property you're buying to ensure it can serve as sufficient collateral for the loan. But as long as your situation remains the same and the property is appropriate to guarantee the loan, you should be able to borrow at the terms offered by the lender in your pre-approval.
Pre-approvals are generally good only for a limited period of time, which is usually between 30 and 90 days, depending on the lender. You can get pre-approved by multiple lenders so it's ideal to shop around for the best personalized loan offer, but some lenders are much faster with issuing pre-approvals than others. You can expect to wait anywhere from several days to several months to get pre-approved.
There are a few key steps you'll need to take to get pre-approved for a mortgage. These include:
Be aware that pre-approval is not a 100% guarantee you'll be able to borrow. Make sure you act within the specified time. If you do, you should get the loan at the agreed-upon terms -- assuming your financial situation stays the same and the house appraises for enough to serve as sufficient collateral.
The amount of time it takes to get pre-approved varies by lender as well as by the complexity of your financial situation. Some lenders will review your financial situation and provide a decision within a few days. Others could take weeks or even months to verify all of your financial details and provide pre-approval, particularly if you are self-employed with multiple income sources to check or if you've had credit problems in the past.
Mortgage pre-qualification is an informal process based on information you submit. A lender will look at your credit score and estimated income to determine how much you'd likely be able to borrow and what your probable rates would be. Pre-approval is a more formal process in which you actually submit an application and a lender reviews your specific financial details to give you a personalized loan offer.
While you can make an offer on a house without mortgage pre-approval, some sellers will not accept the offer -- particularly if there's a contingency in the contract specifying that you don't have to go through with the transaction unless you're approved for financing. Sellers want to see a pre-approval letter as evidence that you're actually qualified to buy a home and, especially in a seller's market, they are likely to choose a buyer who has already got their mortgage approved.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool brand that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2020
The Ascent. All rights reserved.