Mortgage Pre-Approval: The REAL Step One

Getting Pre-Approved

You cannot make an offer on a home without a pre-approval letter.

This is so important that it bears repeating…

You cannot make an offer on a home without a pre-approval letter.

The pre-approval letter MUST be included with an offer when it is submitted to the listing agent and Seller for consideration.

Understandably, the Seller wants to make sure that you, as the Buyer, can get financing for the house. The pre-approval letter gives the Seller confidence that you are a well-qualified Buyer.

This is why the pre-approval letter is so critical and why it's our first step in the home buying process.

The pre-approval helps you develop a comfortable budget.

I use the term “comfortable budget” because the lender may review your finances and say that you're approved to purchase a home for $600,000. However, when you look at the terms and how much the monthly payment is going to be on a $600,000 home, you might say “Whoa! That's not for us!” You realize, by looking at the numbers, that you feel more comfortable around the $400,000 price range.

So, even though you are pre-approved for a certain amount, your comfortable budget may be different.

Establishing your comfortable budget is going to help us determine what price range of homes to be looking at.

It doesn't make sense to go look at $600,000 homes when we really know that you want to be in the $400,000 range.

Assessing your unique financial picture.

Individual finances are like personalities, everyone has their own unique traits. Your lender will tell you how your individual financial picture impacts not only your pre-approval amount, but also your interest rate, down payment options, financing type, and costs.

Your income, credit score, and debts (including what kinds) are just a few of the things the lender takes into consideration when determining your pre-approval terms.

After reviewing all of your finances, the lender may have recommendations for you in order to improve one or more of your pre-approval terms.

For example, the lender may see that you have a nice amount of cash in reserves, but there is a medical bill outstanding. By paying off this medical bill, the lender realizes that you can qualify for a better interest rate. So, in this case, they may suggest you pay off the medical bill. (This is for example purposes only, we are not licensed lenders. Check with your lender about your particular situation.)

I suggest anyone thinking about buying a house in the next 12 months, to get pre-approved right away.

Making any changes to your financial picture is easier to do over time. Whether that is paying off some debt, working on your credit score or just building up some extra cash.

Let’s say it’s January, and you are looking to purchase a home in September. Since you followed my advice and spoke to a lender now, you learned that if you pay off $3,000 in debt, you will qualify for a larger purchase price. OK! You have 9 months to pay off the $3,000. But, if you wait until the middle of August to get pre-approved, and you want to pay off that $3,000 debt by September, it is going to be harder to get it done.

Last 2 months of paystubs
Last 2 months of bank statements
Monthly debt payments (car, student loan, etc)
W-2’s / 1099’s
Last 2 years of tax returns - self employed
Current mortgage statement
Brokerage / retirement accounts
Divorce / Bankruptcy / Foreclosure documents