Everything You Need to Know About Mortgage Pre-Approval
December 28, 2018 | kcallender
Learn how to get a pre-approval letter, when to pay fees, how it could affect your credit score and more.
When you start seriously looking for your new home, the first step is to get a pre approval letter from a lender. A pre-approval letter will let you know how much house you can afford. It also gives sellers peace of mind that you are qualified and able to purchase the home.
How to Get Pre-Approved
The process is pretty straight forward and easy to complete. Getting a pre approval letter requires a lender to do a quick deb-to-income assessment. This allows them to figure out how much money you can borrow. Most lenders will give you a call and review your information with you. They will discuss your income, any debts you have, and credits score among other things.
Some lenders will ask for more information such as documentation proving your income. They may also run your credit report before they issue a pre approval letter. Each lender has a different set of criteria they require before they can give you your pre-approval letter.
This letter is very a helpful and an important first step in the home buying process. keep in mind, is by no means binding on you or the lender to complete the process.
Pre-Approval vs. Prequalified: What’s the Difference?
While these terms are sometimes used interchangeably, they can be quite different. They both refer to a pre-approval letter from a lender saying that they will accept an application for a mortgage as long as everything checks out in the process.
A pre-qualification is generally viewed as the first step in getting a mortgage. While a pre-approval is the next step after that. A pre-approval generally means that the lender has looked a little deeper into your financials and credit situation. This may require providing documentation and doing a hard pull on your credit report.
Each lender is different, and some use the terms interchangeably. Still others may have set guidelines for each. It is best to talk to your lender about your specific situation and what they require. Until an application goes through underwriting and all documents are reviewed, there’s no guarantee that a buyer is 100% approved for a loan.
Do You Have to Pay a Fee for Mortgage Pre-Approval?
Typically there are no fees associated with a pre-approval letter application. The only fees that are normally paid are that the end of the process at the closing table. If your lender asks you to pay a fee you should talk to your real estate agent before you pay anything. Get their advice on what is appropriate for your situation.
Does a Pre-Qualification Application Affect Credit Scores?
Every time you pull a credit report from one of the major credit reporting agencies it will bring your score down a few points. However, when you are applying for loans and evaluating different lenders within a short time-frame (30 days) your score shouldn't be affected by the multiple inquires.
It is recommended that you check out different lenders to find one that will give you the best deal on your loan. Losing a couple point on your credit score to save money on your loan is absolutely a good trade off. In any real estate market, having a pre-approval letter from a reputable lender shows your serious about buying a home and makes your offer that much stronger!