The outcome of your pre-approval will be a letter that states Your Big Number -- your maximum purchase price. You should make sure you are clear on what your monthly payment will be at Your Big Number, and on what sort of mortgage program (rate and terms) that monthly payment is based. That number will drive your house hunt and subsequent decision making, so make sure you understand the underlying details -- you don't want to find a home priced at Your Big Number, and then realize that the payment you were quoted was the minimum payment on an Option ARM with a five-year prepayment penalty, and not an interest-only payment on a hybrid 7/1 ARM with no prepay penalty. Show
What gives you clout, enables you to shop for homes within your price range, and helps you flex your homebuying muscles when you're ready to make an offer?
It's a mortgage pre-approval letter from your lender, of course!
So what is a mortgage pre-approval? In a nutshell, it's a letter from a lender saying that it's tentatively willing to lend you a certain amount for a property. To get pre-approved, you will need to submit your financial documents to the lender who will then evaluate your income, your debt, and your credit score to determine if you qualify for a mortgage.
Get the Guide for First Time Home Buyers, and learn more about the process of becoming a homeowner.
Sellers and Realtors® love buyers with a mortgage pre-approval letter. This shows them that you're a serious, qualified buyer who has the financial backing of a lender and that you mean business. After all, unless you're paying cash, it's hard to make an offer if you don't know whether you qualify for a loan.
4 Reasons Not to Make an Offer on a House without Mortgage Pre-Approval
What do I have to do to get pre-approved for a mortgage loan?Common documents for pre-approval include recent pay stubs showing your income, your credit report (your mortgage consultant will handle that), W-2 forms, 1099 forms if you own your own business, and banks statements. The more detailed your pre-approval process is, the more quickly final approval can happen. Rocket Mortgage offers a few levels of approval designed to give you a clearer picture of what you can afford: Prequalified ApprovalWith a Prequalified Approval, we’ll pull your credit and ask you some questions about your income and assets. Then, we’ll estimate what you can afford. By checking your credit score, our Prequalified Approval can be more accurate than a standard prequalification that doesn’t involve this step. If you’re eligible for a mortgage, we’ll issue you a Prequalified Approval Letter. Verified ApprovalAfter you’ve been Prequalified Approved, you can level up to a Verified Approval. 1 You’ll speak to a Home Loan Expert and provide some documentation so we can verify your income and assets. Because we’re verifying your income and assets along with your credit history, a Verified Approval is a more accurate estimate of what you can afford. It also carries more weight with a real estate agent and the seller, because they’ll know we verified that you can afford the home you wish to buy. Once you get Verified Approval, we’ll give you a Verified Approval Letter. You can show this to your real estate agent and the sellers as proof that you can obtain a large enough mortgage to purchase the home. Remember, both Prequalified Approval and Verified Approval℠ are estimates to help guide your home search. After you make an offer on a house, your full mortgage approval will depend on the home being appraised by a third party and passing any required inspections. Does prequalification mean you're approved?When a credit card offer mentions that someone is pre-qualified or pre-approved, it typically means they've met the initial criteria required to become a cardholder. But they still need to apply and get approved. Think of these offers as invitations to start the actual application process.
Is prequalification for a loan a guarantee?A prequalification or preapproval letter is a document from a lender stating that the lender is tentatively willing to lend to you, up to a certain loan amount. This document is based on certain assumptions and it is not a guaranteed loan offer.
How accurate is a prequalification?Prequalification tends to refer to less rigorous assessments, while a preapproval can require you share more personal and financial information with a creditor. As a result, an offer based on a prequalification may be less accurate or certain than an offer based on a preapproval.
Is a pre approval letter good?Preapproval can be extremely valuable when it comes time to make an offer on a house, especially in a competitive market where you might want to stand out among other potential buyers. Again, a seller will be more likely to consider you a serious buyer because you have had your finances and creditworthiness verified.
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