When you begin to explore all of the steps involved in buying a home, you might find yourself battling information overload. Especially if you’re new to the world of real estate, it can be very overwhelming. There is just so much to think about! One piece of advice that you are likely to encounter again and again is the recommendation that you get preapproved for a mortgage. Why? Preapproval offers significant benefits for anyone interested in securing a home loan. Understanding how to get preapproved for a mortgage is an important step in the process of buying your dream home.
Prequalified vs. Preapproved
Pursuing a mortgage often means expanding your vocabulary to include some new terminology. For example, when you begin exploring the requirements for obtaining a home loan, you may be offered the opportunity to prequalify for a mortgage. To prequalify, you will complete an application. Then, a prospective lender will use the information that you provide to put together an estimated loan amount.
However, prequalifying is not the same thing as preapproval (source). Preapproval is a more rigorous process that requires you to submit substantial documentation. After verifying the accuracy of the documents, the lender will determine exactly how much they are willing to lend. Getting preapproved for a mortgage is more work, but it can provide you with an edge as you move forward in the home-buying process.
The Benefits of Getting Preapproved for a Mortgage
Why is learning how to get preapproved for a mortgage (and putting that knowledge to work) a good use of your time? As Bankrate points out, buyers who go to the trouble of getting preapproved enjoy the following benefits:
- They know exactly how much they can afford to spend.
- Real estate agents take them more seriously.
- Sellers often prefer them since they have proof that they can obtain financing.
- They can secure a mortgage more quickly because the bulk of the paperwork is completed during the preapproval process.
Are you ready to learn how to get preapproved for a mortgage?
Preparing for Preapproval
As CNN Money reports, a Federal Trade Commission study revealed that more than 40 million Americans have errors on their credit reports, so before you start the preapproval process, it’s smart to do a quick check of your credit scores and credit reports. Credit.com recommends requesting and reviewing your credit reports with an eye toward spotting and correcting any errors before you begin interacting with lenders. This allows you to avoid any confusion over inaccuracies, so you can move forward quickly and confidently. What if you miss a mistake? Fortunately, catching errors during the preapproval process allows you to take steps to have them corrected before you actually apply for a mortgage.
How to Get Preapproved for a Mortgage
When it is time to complete the preapproval process, you will complete a mortgage application (leaving any spaces referring to a particular property blank) and pay an application fee. You will also need to supply a hefty amount of documentation so that the lender can thoroughly vet your credit rating and financial background. As Investopedia states, the required documentation for preapproval generally includes the following:
- Personal information. You will be asked to provide identification in the form of your driver’s license, state ID card, or passport. The lender will also need your Social Security number and your permission to pull your credit report.
- Income information. To demonstrate your income, you will likely be asked to hand over several documents, like copies of your federal tax returns for the last two years, W-2 statements for the last two years, recent pay stubs, and recent statements for any asset accounts, including your checking, savings, and investment accounts. If you have additional income sources like alimony, bonuses, commission, Social Security payments, or retirement benefits, you will be asked for documentation regarding those as well.
- Employment information. Lenders prefer working with borrowers who have a stable work history, so the lender may contact your employer. If you have recently changed jobs, you may be asked for the contact information of your previous employer. Self-employed applicants will need to provide paperwork demonstrating their business and income.
- Asset information. Buying a home involves some sizable outlays, including your down payment and closing costs. Lenders want to see proof that you are prepared for these expenses in the form of bank statements. If you intend to fund all or part of your down payment with gifts from family or friends, these must be properly documented with notarized gift letters that certify that the money was indeed a gift and that no repayment is expected.
Preapproval Versus Approval
Although preapproval can definitely speed up the approval process, it is not a guarantee that you will be approved for a home loan. As Zillow explains, a preapproval letter is not an offer to lend or a commitment to provide a mortgage. It does not guarantee specific rates or terms. Preapproval letters are normally only good for a limited time, and lenders may require additional information or set more conditions before agreeing to extend a loan.
Discovering how to get preapproved for a mortgage is a good first step in your journey to becoming a homeowner. If you have questions about mortgage preapprovals or are eager to get started, contact PrimeLending of Kansas City if you live in the Kansas City area. We have been helping borrowers purchase and refinance homes for nearly 30 years. We offer competitive rates and fees, process loans locally, and close loans on time. And with cutting-edge technology and top-notch customer service, PrimeLending keeps borrowers informed every step of the way. When you are ready to select a mortgage lender, please give us a call at 844-701-5626 if you live in the Kansas City area.