February 15

5 Essential Reasons To Get A Mortgage Pre-approval

Five Important Points For Getting Your Mortgage Pre-approved

Shopping for a home before getting pre-approved for a mortgage is the equivalent of walking into a grocery store without a wallet. Yet, the vast majority of homebuyers don't get a loan pre-approval for the house hunt. So, what is a pre-approval? (For one, a pre-approval is different from a pre-qualification.)

The lender relies on information provided by the buyer to estimate how much the borrower could qualify for.

The lender verifies the borrower's information and documentation to determine exactly how much it would be willing to lend to that borrower.

The documents to get pre-approved are the same documents that you would need to get a mortgage.

Documents like:
•Pay stubs

•Last 2 years' W-2s

•Last 2 federal tax returns

•Two months' worth of bank statements of all types of accounts

•Your credit report

A pre-approval is not a loan commitment, but it helps speed up the underwriting and loan approval process.

Here are five great reasons it’s better to get a mortgage pre-approval before you go house hunting.

No. 1: The competitive market
Buyers often are eager to start looking at homes and tend to leave what they view as the boring, bureaucratic part of the home buying process for last.

But in this competitive market, any serious buyer should pursue a pre-approval from a lender in advance to beginning a home search.

No. 2: Increasingly everyone does it
Less than 10 percent of buyers who got a mortgage in 2014 got loan pre-approvals, according to Home Mortgage Disclosure Act data compiled by LendingPatterns.com. That percentage has gone up sharply as supply has tightened, demand has risen and rents increase to a point where owning makes more and more sense.

No. 3: No pre-approval, no accepted offer
Real estate and loan professionals say it's common to come across buyers who skip the pre-approval process.

Many agents and sellers reject offers from buyers who don't have pre-approval letters in hand.

You have to have a pre-approval and it must be a real one where the lender has verified not just your credit, but bank statements, tax returns -- and agent can call the lender to verify.

No. 4: You need to know where you stand
Some buyers put off the loan application because they fear a lender may not approve them for the amount they plan to spend to buy the house.

It's like when people don't go to the doctor for their annual checkup when they are afraid to find out what's wrong with them. That's the same thing with getting pre-approved.

Others simply don't want to share an abundance of private information with a lender until they actually find the home they want. All of which put you at a disadvantage and behind the competition.

No. 5: Loved ones can't approve you for a loan
It's typical for potential buyers to assume they qualify for a certain mortgage amount based on what a neighbor, friend or relative with a similar credit profile bought. Often times this doesn’t hold true.

A survey by NeighborWorks America found that nearly 4 in 10 people who are thinking of buying a home first seek advice from friends and family who own a home. Only 16 percent say they approach a real estate agent for advice in that early stage and mortgage lenders are approached only 9 percent of the time, according to the survey.

You are beyond compare

Even if you pay your bills on time and earn about the same as the friend who just got that $300,000 mortgage, don't assume you qualify for the same loan.

A credit score difference of 700 to 680 can severely affect one's ability in terms of down payment.

Getting pre-approved before you shop for a loan also allows buyers time to fix unexpected errors on their credit reports.

If you find the house that you want but have not had the time to get pre-approved and the other person did, there is no way that the seller will look at your offer.


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