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    Understanding the Loan Pre-Approval Process

    When preparing to purchase a home, one of the most important things to understand is the mortgage loan pre-approval process.  When a lender pre-approves a potential buyer for a mortgage loan, they are confident that the necessary down payment can be made and that the income is enough to obtain the loan. It’s very important for potential buyers to educate themselves on the process and what steps are involved.

    The first step in the pre-approval process is understanding the importance of one’s credit scores. There are three main credit reporting agencies and they are Equifax, TransUnion, and Experian. In order to obtain a mortgage, the lender pulls a report and score from all three bureaus and uses the mid or median FICO score for qualifying. FICO scores range between 300-850. It is helpful to review your credit report early and clear up any errors that may be found. A great lender can help with this process as well. It is important that you seek advice prior to paying off or closing any accounts.

    Once the credit report is obtained and cleared (if needed to be), then the next process is quite simple. Be prepared to share with the lender your income information which also includes your banking information. Pay stubs, bank statements, w2’s and previous tax returns could all be required. Also, any additional income such as alimony, child support, retirement benefits, commissions, or bonuses will need to be supplied to the lender. If someone is helping with your down payment by giving you money then it must be in the form of a gift and not a loan. Your lender will provide you with a gift letter to be signed by all parties. Please seek your lenders advice before depositing any gift funds. Every program requires the down payment to be documented differently. To avoid any potential problems or delays wait until you have been given specific instructions from your lender. You also need to be prepared to share your personal information with the lender. It is required to present a valid driver’s license or passport and provide your social security number for a credit check. With a great lender, this entire process will be fairly simple and easy.

    Understanding the pre-approval process is crucial for obtaining a mortgage. When preparing to make an offer on a home, your real estate agent and the seller will want to see a pre-approval letter from your lender. In fact, many sellers will not accept an offer without one. At the same time, it is important to understand that the pre-approval process is not the same thing as a mortgage pre-qualification process. A pre-qualification process is simply an informal process with a lender that provides a general idea and price range that you can afford. This does not bring a buyer any closer to obtaining a mortgage.  However, the pre-approval process does.

    When you are ready to buy or you want to know if you are able to buy, give us a call and we would love to get you connected with one of our most trusted lenders. Finding a great lender is one of the most important things about buying a home right along with finding a top agent. We work along side our trusted lenders and take the stress out of buying a home.  We would love to help you!

    -Brad Thomas, Buyer Specialist

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