If you’ve never purchased a home before – or it’s been a few decades since you’ve done it – you may not be realize that getting a pre-approval letter from a mortgage provider is one of the first steps towards the home search and purchase process. And if you don’t know much about the pre-approval process, now is a great time to learn.
In the most basic sense, a pre-approval is an assurance from a lender that you will be qualified to finance a home purchase up to a certain dollar amount. It’s not necessarily a guarantee – as something could happen or be uncovered during the due diligence that takes place during approval – but it’s a pretty safe bet.
A pre-approval comes on the lender’s letterhead and provides a dollar amount. Your agent may ask for this letter – just to be sure they’re dealing with a serious buyer – as well as any homeowner that seriously considers accepting an offer you put on their property.
Pre-approval isn’t required by law, but as you’ll see in the following section, it offers an array of benefits as you begin the process of finding your next house.
It’ll take time to work through the pre-approval process, so it’s natural for a prospective homebuyer to ask, “Why?” Well, without knowing any specifics about your situation, here are some of the major benefits that come with getting pre-approved by a lender:
Getting pre-approved is really a no-brainer. It’s something every prospective buyer should do to kickstart the process and get on with finding their next home – and you should, too.
The process of getting pre-approved is pretty straightforward. There’s no reason to stress about it, but there are some steps you can take to increase your chances of getting pre-approved for the right amount. Here are a few tips:
The lender is going to be pulling your credit score, so it’s smart to go ahead and review the score on your own and see where you stand. Most lenders will want to see a score of at least 680 for conventional financing (or 620 for an FHA loan). If you’re at or below this marker, you may want to take a few months to improve your credit score before proceeding.
You’ll most likely be required to put forth a minimum of 3.5 percent down on a home purchase. And if you want to do away with PMI, you’ll need to put at least 20 percent down. The bank is going to make sure you have at least enough liquid cash to cover the bare minimum. Now’s the time to start stockpiling cash. It’ll help you get approved, while also improving your financial situation when it comes time to approach the closing table.
Now’s not the time to make a career pivot or change jobs. You want to show the lender that you’re in a stable financial position. This will make you a more attractive candidate. If you’re looking to make a change, wait until after you close on a house.
You don’t want to pick up any new debt between now and when you close on the house. Avoid adding any car loans, credit card debt, or payments. Keep your budget lean and lay low.
When it comes to getting pre-approved, the bank or credit union you’re working with will ask for some documents and information to guide their decision. Here’s a sample list of what you’ll need:
Gathering and organizing these documents ahead of time will save you a considerable amount of effort when it’s time to provide the appropriate information.
At Green Residential, we take great pride in working with homeowners and real estate investors throughout the Greater Houston area – and have for the last three decades. If you’re interested in buying a home in the near future, please give us a call, and we’ll walk you through some of the steps that are involved in the process. We look forward to building a relationship!