The Mortgage Pre-Approval Process

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What’s the Difference between a Pre-Qualification and a Pre-Approval?

 When you decide to buy a home, real estate agents and home sellers alike will want to know if you can afford it. They’ll also want to know that you’re committed to buying and aren’t simply browsing the market. The best way to validate your commitment to the home buying process is through a mortgage pre-qualification or pre-approval. Both processes demonstrate that you have the financial aptitude to afford a mortgage. However, the level of qualification and validation they provide is very different.

Getting a pre-qualification is a less robust first step towards ensuring agents and sellers that you can indeed afford the home you’re interested in purchasing. However, it’s more of an estimate than a guarantee. With a pre-qualification, you provide a bank or mortgage broker with estimates of your debt-to-income ratio, assets, down payment, employment history and perceived credit score. However, without a run of your credit report a pre-qualification is only able to determine what you’d qualify for if you made an offer and applied for a home loan.  

A pre-approval on the other hand is a written, conditional commitment from a bank or mortgage lender that ensures you’re pre-approved for the mortgage financing at hand. It requires filling out a loan application, supplying verified income, asset and employment documentation, running your credit and underwriting the loan file. It gives an accurate measure of what you can afford and it shows sellers and agents that you’re a committed buyer, which boosts your chances of buying a home at the price you want.

What Documents are Required for the Pre-Approval Process?

Unlike a pre-qualification, this will require a credit pull and is not based on estimates. The most recent and up-to-date income, assets and credit information will be needed before the pre-approval letter is drafted.

 You’ll need to provide:

-       A Recent Credit Report

-       Bank Statements

-       Pay Stubs

-       Tax Returns

How Long is a Mortgage Pre-Approval Good for?

Once you receive the pre-approval letter from your bank or mortgage broker, it’s typically valid for 60-90 days. However, this time frame varies from lender to lender. The letter will have a date on it, which will indicate the time frame of its validity. The reason for this expiration is so that banks can have the most up-to-date information about your salary, assets and debts. If your housing search extends past the date of validity, you’ll need to re-apply to get re-approved. A simple reverification of your financial documents including pay stubs and bank statements will be required and a fresh pre-approval letter will be distributed shortly thereafter.

Ready to Begin your Home Search?

If you’re serious about buying a new home, I can help. With more than 16 years of successful sales throughout South Orange County and the Ladera Ranch Community, I have the negotiating skills and community knowledge to help you find the right home. I can also assist and direct you through the mortgage pre-approval process. To get started, contact me today.

Photo Source: 50 Glenalmond Lane, Ladera Ranch, CA – Active Property Listing   

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