If you’re seriously considering purchasing a home, one of your first steps is to get pre-approved for a mortgage.
The process is relatively painless and when you’re finished you can shop for homes with confidence.
Don’t know the first thing about getting pre-approved and what’s needed to move forward with the process? Here’s everything you wanted to know about getting pre-approved.
How does a pre-approval differ from a pre-qualification?
I’m so glad you asked! It’s important to first understand the difference between the two terms, as they’re actually very different and you’ll want to make sure you understand what you’re getting into.
A pre-qualification is an approximation based on info you verify as to how much you’re able to borrow from the bank.
Approximation is the keyword in that last sentence. It’s necessary to understand that a pre-qualification is merely an approximation, and not necessarily a promise.
On the contrary, a pre-approval is a full mortgage loan commitment, subject to a fully executed purchase contract and the completion of an appraisal.
Essentially, a pre-approval scrutinizes every aspect of your credit worthiness and determines exactly how much home you may borrow under a specific loan program, thus allowing you to shop for homes you know you can afford. A pre-approval also allows you to be ultra competitive in a low-inventory market.
Ready to move forward with a pre-approval? Here are the steps you’ll need to take:
Take a look at your credit report
Avoid any surprises and take the time to review and clean up your credit report before you sit down with your lender. Haven’t checked your credit report in a while? This site gives you access to an in-depth credit report and explanation.
Don’t skimp on this step by just looking at the credit score your credit card company might provide to you as an added bonus— truly looking over your actual credit report is best.
Meet with your mortgage lender
Sitting down or phoning your mortgage lender is the next step in the pre-approval process. They’ll need to talk with you in order to obtain the information necessary to carry out the pre-approval.
In order to be fully prepared for the conversation have the following items handy:
- Income info: If you’re a W2 employee go ahead and gather your last two pay stubs. You’ll also need to dig up your last two years of tax returns and W2s.
- Asset verification: Buying a home is a big financial decision and lenders want to make sure you’ve got the assets to cover your down payment and monthly mortgage payments. You’ll need to provide at least two months worth of statements for any account used in sourcing your down payment. Paying part of the down payment with a gift? You’ll need to source that, too.
- Driver’s license and social security card: You’ll need these so that your lender can verify who you are and run a credit check.
After you’ve met with your mortgage lender, provided the necessary documentation and verified all information it will likely take 3 to 4 days to have your pre-approval in hand.
Now that you’ve obtained a pre-approval, the next step is to choose a mortgage professional to work with.
How to choose a mortgage lender that’s right for you
Buying a home and obtaining a mortgage is a big deal, and you’ll want someone you trust to help you walk through the process. It’s smart to choose someone that works well with your desired goals for your home buying experience, and if you don’t have a lender in mind, here are a few ways you can go about finding the best lender for you.
Start shopping by getting referrals
These referrals could be from a friend who had a good experience, or from professionals like your Realtor, your builder, or even from your attorney, accountant or financial adviser.
Look for relationship-based referrals with an emphasis on trust, reliability and experience. You want someone who will be there with you, application to closing, and every step in between.
Customer service could make a big difference on the road to closing, even if all offers are otherwise equal.
Interview potential lenders
Key factors to look for are accountability and open communication. Is the loan officer accountable to others in the company, and thus motivated to keep the experience positive and the outcome desirable? Is the loan officer a good communicator, with an understanding of how to explain the details so that you will clearly understand?
When you are interviewing a loan officer, other important questions to ask right off the bat include:
- Are you available during non-business hours?
- How quickly can I expect to hear from you when you have news about my loan process?
- If there is “bad news” during the process are you willing let me know right away and to work with me to find a solution?
Research online reviews
Reviews can help you see if there are any patterns of predatory lending practices or poor customer service.
But don’t discount the value of a real-life conversation. A face to face or phone interview really helps you find a loan officer who knows how to ask you the right questions to get you the best offer, and who can show you and explain why, for example, a certain option will or won’t work for your particular situation. That loan officer should ask you questions until your situation is fully understood.
Compare your offers
Once you have talked with some mortgage brokers, compare the offers you receive, starting with the Loan Estimate or worksheet each lender should present you.
And if you really want to understand and compare them in an apples-to-apples kind of way, you won’t be looking at rate vs. rate, or even fees vs. fees. As with many things in life, it’s the bottom line that counts, so look at All Costs vs. All Costs.
At this point after you’ve received your offers, you may be asking, “Is the bottom line really the bottom line. Can I negotiate?”
Good question. Because if you don’t negotiate, you may never know.
It’s certainly worth asking a few more questions, with the best places to negotiate being interest rate, the effect of your down payment, and perhaps fees. Your rate, will, after all is said and done, depend on your credit score and loan-to-value.
Don’t be afraid to set your standards high, when shopping for a loan. Your mortgage company should be as good as or better than any other lender out there, offering you expertise, knowledge, convenience and exemplary customer service.
For example, when your credit report is pulled, you should be able to sit down and review it together. You also should expect to have your loan officer’s direct number, always to be kept in the loop about where you are in the loan approval process, and you should expect to be given options if things change during the deal.
Detailed and continuous communication is key to getting the best mortgage for your situation. After all, it could be a thirty-year relationship. Make sure you’re happy with it.
Note: If you’ve already been pre-qualified or pre-approved with another lender make sure to check out our Second Look program.
Second Look is a free, no-obligation second opinion. Schedule a face-to-face meeting with one of our qualified loan officers to talk about loan programs and options you may have not considered. We’ll make sure you’re sure about your most important investment, then we’ll give you $100 for your time.