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An important part of shopping for a new home is knowing how much you can afford. A Mortgage Pre-Approval helps you shop for homes within your budget, and helps your offer stand out once you find a home. We’ll go over the what, why, and how of getting a Mortgage Pre-Approval for your new home.

Is There A Difference Between A Mortgage Pre-Qualification and Pre-Approval?

A pre-qualification and pre-approval are both ways to determine how much house you can afford when shopping for a new home. Think of a mortgage pre-qualification as the rough draft for a home loan approval. It’s your first pass on understanding your financial readiness to buy a home.

Although some mortgage lenders use these two terms interchangeably, a mortgage pre-qualification doesn’t usually require a hard pull on your credit or documentation to verify your income and assets.
If you’re unsure of your credit score and financial preparedness, a mortgage pre-qualification is a good first step to determine how much you can afford for your new home.

What Is A Mortgage Pre-Approval?

Now let’s consider the Mortgage Pre-Approval as the final draft for getting approved for a home loan. During the pre-approval process, a mortgage lender will pull your credit and verify your income, assets, and debts. You may be required to provide documents like bank statements and pay stubs.
If you get pre-approved, the lender will provide you a Mortgage Pre-Approval letter that details the type of home loan and how much home you could afford. The pre-approval offer will expire after a certain time, usually after 90 days.

A Mortgage Pre-Approval is not a full approval from the mortgage lender. Once you find your home, your lender will still need to approve certain property details to guarantee your home loan. We’ll discuss this process later in the article.

Why Should I Get A Pre-Approved For A Mortgage?

Whether you’re an experienced home buyer or buying your first home, a Mortgage Pre-Approval is a roadmap that guides you on your homebuying journey. It’s best to apply for a Mortgage Pre-Approval before you start shopping for a new home. Knowing how much home you can afford, what to expect for closing costs, and the interest rate you may qualify for helps you shop with confidence.

You’ll share your Mortgage Pre-Approval letter with your real estate agent so they can narrow your home search and focus on the options that are best for you. Plus, you can share your Mortgage Pre-Approval letter with the home’s seller and make your offer stand out once you find your home!

How To Get Pre-Approved For A Mortgage

To start the Mortgage Pre-Approval process, you will contact a mortgage lender to verify your personal and financial information like your credit score and income. Let’s review the items you should have ready to apply for a Mortgage Pre-Approval.

• Identification – Have a valid driver’s license and your Social Security number handy
• Source of Down Payment – Proof of or source of funds for down payment
• Paystubs – Two months of paystubs (requirement may be different for self-employed)
• Tax Returns – Your W-2 statements from the last two years (or business tax returns if self-employed)
• Assets – Bank statements, 401k, and investment account statements
• List of Monthly Debts – Your debt-to-income ratio (DTI) helps mortgage lenders determine if you’re able to take on more debt. You can calculate your DTI by adding your recurring monthly debts and dividing this by your monthly pre-tax income. Monthly debts could include:
  • Car loans, student loans, credit cards, medical bills, personal loans, etc.
• Gift Letter – Is someone gifting your money for your down payment? You may need a Gift Letter along with proof of funds from the donor
• Real Estate Agent Consent – Help ensure your Pre-Approval letter contains exactly what is needed

During the pre-approval process, a mortgage lender will pull your credit reports from either of the three main credit bureaus: Experian, Equifax, and Transunion. Although your lender will verify your credit score, it’s helpful to keep a pulse check on your credit as you shop for a new home. You can access your credit reports for free from one of the credit bureaus listed above.

Once your mortgage lender has the required documents to verify your information, you can usually expect to hear from your lender within the same day, or up to 3 business days. If you get pre-approved for a home loan, your Pre-Approval letter will estimate you how much home you can afford.

What Happens After I Get A Mortgage Pre-Approval?

The Mortgage Pre-Approval process is similar to the mortgage application process. Again, think of a Mortgage Pre-Approval as the final draft for your home loan approval. There are additional items you’ll need to submit for full home loan approval.

Your mortgage lender may require a home appraisal to make sure you’re not paying more for the home than it’s worth. In addition, you will typically order a home inspection to ensure the home doesn’t require costly repairs.

Once you complete these steps, you can submit your full home loan application. Next, your home loan will move to processing and underwriting. Nothing else is needed from you, the buyer, at this point. You’re in the home stretch to the big day – closing day!

A Mortgage Pre-Approval can guide you on your homebuying journey, lighting the way on your path to homeownership. If you’re in the market for a new home and want to know your home loan options, call 800-451-1895 to speak with a PHH Loan Officer, or Contact Us Here .