Whether you’re a first-time home buyer or a seasoned homeowner, the housing market is competitive. In most markets, the number of house hunters surpasses the number of homes for sale. Everyone wants their dream home and there aren’t enough to go around! This kind of competition means you need to stand out as a home buyer. One way to show sellers, real estate agents and lenders that you’re serious about buying your dream home is to go through the mortgage pre-approval process.
What is mortgage pre-approval?
Mortgage pre-approval is not to be confused with pre-qualification. Pre-qualification is an informal mortgage loan estimate from a particular lender. You can usually complete this over the phone and all of the information recorded is self-reported. None of it is verified, and your credit is not checked.
A mortgage pre-approval is much more valuable. It’s a formal estimate from a lender of how much you are qualified to borrow. All of the information you provide is verified and your credit is checked. However, pre-approval doesn’t mean you’ll automatically get your mortgage approved. Final loan approval happens when you get an appraisal and the loan is applied to your desired property. But pre-approval helps speed up the home-buying process and makes you an attractive buyer in a competitive market.
Only a lender can pre-approve you for a mortgage loan. In a nutshell, pre-approval is getting a lender to write a letter that says how much you can borrow under certain circumstances.
To get pre-approved, you’ll likely have to provide the lender with the following information:
W2s and tax returns for the previous 2 years
Bank, retirement, or other asset statements
That information will help the lender determine how much they are willing to lend to you. The actual amount you will be qualified to borrow hinges on these four things:
Capacity: Your current and future ability to make your payments
Capital or Cash Reserves: The money, savings, and investments that you own and can quickly convert to cash
Collateral: The home, or type of home, that you would like to buy
Credit: Your track record of paying bills and other debts in a timely manner
Why is pre-approval important?
Many buyers don’t realize that there is no cost for a buyer to work with a Real Estate Agent. In fact, the cost of the agent is covered by the seller of the home. This is an ideal opportunity to find the right Real Estate Agent, which has a big effect on the home buying experience.
Lenders work with many agents and connect their pre-approved clients to a highly-qualified Real Estate Agents that have a buyer’s best interests in mind. By getting pre-approved, you’ll establish a relationship with a lender early in the home buying process and be able to find a Real Estate Agent that matches your needs best.
Buyers also often think they need higher credit ratings than they actually do. And they tend to overestimate how much money they need for a down payment. Getting pre-approved eliminates these misconceptions.
Avoid falling victim to the same mistakes of other home buyers. Making pre-approval your first step gives you a clear picture of how much you can borrow. And that amount determines what you can buy. With a pre-approval letter in hand, you might be pleasantly surprised by the kind of home you can afford. You’ll also get ahead of others in the market and purchase your dream home faster.
How to get pre-approved
DC Lending of Vancouver, WA is a family-owned and operated business offering some of the most competitive home loan prices in the Pacific Northwest.
We have a quick quote mortgage loan form that you can fill out online, from the comfort of your home. After reviewing your income, debt, and credit details, one of our loan officers will contact you within 24 hours to discuss your loan options and rates based on your financial goals. They will recommend either a pre-approval or a step-by-step plan to get you started on obtaining pre-approval.
Are you already pre-approved for a mortgage? It never hurts to get a second opinion. Mortgages, like any other product, vary in price from lender to lender. Make sure you’re getting the best deal on your loan by getting a second or even third quote.