If you’re thinking about buying your next home then you’ve probably heard about getting pre-qualified or pre-approved for your home loan. Whether this is your first home or you haven’t purchased a new home for a while, the home-buying process can still feel overwhelming. Let’s face it, going to open houses is a lot more fun than thinking about the finances. But getting pre-approved early on will help you shop with confidence and reduce a lot of stress.
Here’s a short refresher on the difference between getting pre-qualified and getting pre-approved. More importantly, why it matters.
5 Steps for a Fast Pre-Approval on Your Next Home Loan
1. Know the Difference: Pre-Qualified vs. Pre-Approved
What’s the difference between getting pre-qualified and getting pre-approved? Pre-qualified shoppers have a ballpark idea of what they can afford. To get pre-qualified, a mortgage lender will ask for basic information about income, assets, and run your credit report. It’s useful but once you’re ready to make an offer it won’t stand as a final approval. When it’s time to make an offer, your buyer will know that your loan approval isn’t a sure thing.
Pre-approval means that your mortgage lender has fully approved your loan for a specific amount, and is ready to fund your loan for the full amount. This is a big deal! For one, your buyers will know that you’re serious and ready to close fast. You’ll have a competitive edge when you’re ready to make an offer. You’ll also have peace of mind knowing that your loan has already been approved even before you make an offer.
2. Find out your Credit Score
Finding surprises on your credit report is the last thing you want when you’re shopping for a new home. Take advantage of this option early. You can find your credit score and download a free credit report every 12 months. Downloading your current credit report can help you find possible errors or misinformation that you can fix. Knowing your score can also give you peace of mind when it’s time to apply for your home loan.
3. Decide How Much You Can Afford
There are a lot of ways to figure out how much you can afford when it comes to your next mortgage. One way is to use a mortgage calculator. Since mortgage calculators don’t take all of your financial details into consideration, they typically provide a ballpark figure. This can be useful but just remember that it’s a general number based on minimal information.
Another option is to use online mortgage apps offered by DIY lenders. These mortgage tools might give you similar results as a mortgage calculator, but they can also be misleading. Especially if the online lender is using a teaser mortgage rate that might not be available to you when you’re ready to get pre-approved.
Always take a closer look at your household finances. Review your current mortgage payment or monthly rent, any recurring debt or loan payments, and monthly expenses such as utilities and groceries. Knowing your home finances and your ideal budget will help you decide what kind of mortgage you’re comfortable with. You can also use the mortgage calculators to find out how much house you can afford based on your ideal monthly payment.
4. Gather Documentation
Once you start your application you’ll be asked to provide documentation that’s necessary to approve your new home loan. But it doesn’t need to be overwhelming. Start pulling together the most common types of paperwork early and you’ll keep the pre-approval process moving fast.
Here are a few examples of documentation items you might need to to provide:
- employment verification such as paystubs, an offer letter, current contracts
- income verification such as paystubs, W-2 forms, bank statements, tax returns
- verification of assets such as investments, retirement accounts, properties
- verification of debts such as student loans, car payments, credit card debt
The pre-approval process moves much faster when you have all your documentation ready. This way, you can provide documentation and verification the moment your mortgage broker needs it. Even if you don’t have everything yet, simply pull together what you do have. This will be enough to get things started and moving quickly to get you pre-approved on your home loan.
5. Start Your Loan Application for Pre-Approval
You can start your application in less than five minutes and working with an experienced mortgage broker will help you get pre-approved quickly. As a pre-approved buyer you will have a competitive edge in the market. Your sellers will know you’re serious and that you’ll be able to close fast once you enter escrow. Once you start your home loan application, your loan advisor will give you a simple checklist and guide you through getting pre-approved.
Working with an experienced mortgage broker makes all the difference in getting pre-approved at the best rate. If you’re already thinking about your next home, give us a call. We can help get your pre-approval started so that your new home loan gets approved fast.