Dylan Graham Real Estate Agent San Diego

(619) 806-1519
Dylan@dylangrealty.com

Mortgage pre approval when buying a house

Find out everything you need to know about mortgage pre approval and why it is essential when buying a house. In less than 7 minutes, you’ll know why, what, when, and how to get this document important for all future homebuyers.

Mortgage pre approval importance when buying a house

Table of Contents

What is mortgage pre-approval

If you are considering buying a home this year, one of the first steps in your home-buying journey is getting pre-approved. To understand why it’s such an important step, you need to understand what pre-approval is and what it does for you. Business Insider explains what mortgage pre approval is:

“In a preapproval, the lender tells you which types of loans you may be eligible to take out, how much you may be approved to borrow, and what your rate could be.”

Pre-approval gives you critical information about the home-buying process that’ll help you understand your options and what you may be able to borrow.

How does pre approval work?

Mortgage pre approval process when buying a house

As part of the pre-approval process, a lender will look at your finances to determine what they’d be willing to loan you.

Your lender will give you a pre-approval letter to help you understand how much money you can borrow. That can make it easier when searching for homes.

You’ll know your overall numbers. With higher mortgage rates impacting affordability for many buyers today, a solid understanding of your numbers is even more critical.

 “I highly recommend that you create a financial budget during the pre-approval process. It is important to understand that while a lender may pre-approve you for a certain loan amount, you and your finances ultimately need to be comfortable with the monthly expenses. While this will be your home, this is also an important financial decision and investment, and do not want to be stressed each month about making your mortgage payment.”

Dylan Graham

The process of mortgage pre approval when buying a house

To get pre-approved for a mortgage, you typically need to provide the following information to a lender:

  1. Proof of income, such as pay stubs or tax returns.
  2. Proof of employment, such as a letter from your employer or a W-2.
  3. Information on any outstanding debt, such as credit card balances or student loan payments.
  4. Information on assets, such as bank account balances and investments.
  5. A credit report

The lender will use this information to evaluate your financial situation and determine how much they will lend you. A pre-approval letter will be issued if you are approved. It is important to note that pre-approval does not guarantee final mortgage approval, as the lender will still need to evaluate the property you wish to purchase before issuing a final commitment

Dylan recommends:

Spend some time looking for the best rates and terms from multiple lenders.“.

Yelp's list of the most reviewed mortgage lenders in San Diego

Here is the list of the first five most reviewed mortgage lenders in San Diego on Yelp in January 2023:

  1. Dave Pennington – Cross Country Mortgage (5 stars; 214 reviews)
  2. Navy Federal Credit Union (3 stars; 158 reviews)
  3. RWM Home Loans (5 stars; 151 reviews)
  4. Home Plus Mortgage (4,5 stars; 148 reviews)
  5. David Wright – Synergy One “We Found You Team” (5 stars; 109 reviews)

You can see the whole list on Yelp, the most reviewed page.

Pre-approval shows you’re a serious buyer

Pre-approval confirms a serious homebuyer

A huge reason why I always recommend buyers get pre-approved before we start to view properties is that being pre-approved by a lender can help a seller feel more confident in your offer. It shows you’re serious about buying their house. A recent article from Forbes notes:

“From the seller’s perspective, a preapproval [sic] letter from a reputable local lender often can make the difference between accepting and rejecting an offer.”

This goes to show, even though you may not face the intense bidding wars you saw if you tried to buy during the pandemic, pre-approval is still an important part of making a strong offer. In fact, Christy Bieber, Personal Finance Writer at The Motley Fool explains it may be the most important part of making an offer:

“Pre-approval maximizes the chances you’ll be able to actually close the deal – and sellers want to see that.

The fact that a pre-approval gives you a better chance of getting your offer accepted is undoubtedly the most important reason to complete this step . . .”

We suggest you read the whole article “This is the most important reason to get pre-approved according to David Ramsey“.

How long does it take to get mortgage pre-approval?

When to apply for the pre approval

The time it takes to get pre-approved for a mortgage can vary depending on the following:

  • the lender you choose and
  • how quickly you can provide the necessary documentation.

Typically, getting pre-approved for a mortgage can take anywhere from a few days to a week.

Some online lenders can even provide pre-approval within 24 hours. However, working with a mortgage broker or a bank may take a bit longer because these institutions have more complex processes.

It’s important to note that pre-approval is not the same as final approval. The time it takes to get final approval can take weeks or even months. The final approval process will require the lender to review the specific property and title and verify your income, assets, and employment.

Dylan:

It’s better to get pre-approved as soon as possible, so you know what you can afford and show sellers that you are a serious buyer.”

What is a mortgage pre-approval letter?

Pre-approval letter

A lender issues a mortgage pre-approval letter. It states the lender has reviewed your credit report and financial information and, based on that review, has determined that you are pre-approved for a mortgage up to a certain amount.

The pre-approval letter will also include the terms and conditions of the mortgage, such as the interest rate, loan type, and any fees or points associated with the loan.

  • A pre-approval letter can be a valuable tool for a homebuyer, as it can give you an idea of the home price you can afford.
  • It helps you stand out from other buyers in a competitive housing market.
  • A pre-approval letter can make buying a home smoother
  • It can help you close the deal faster and avoid delays.

Each bank and lender has its form for pre-approval. You can find mortgage pre approval letter examples online. On the website templateroller.com, there is a guide on writing a pre approval letter, with a downloadable PDF sample.

Dylan:

A pre-approval letter is not a guarantee of a loan, but it is a good indication of your chances of getting a loan when you find a house to buy and apply for a mortgage.”

How long is a mortgage pre approval good for?

A mortgage pre-approval letter is typically valid for 60 to 90 days. This is because a pre-approval is based on your financial information and credit score at the time of application, and these factors can change over time. Before issuing a final commitment, lenders will want to re-verify all information and credit scores.

Even with pre-approval, you will still need to go through the entire mortgage application process once you have a contract.

The pre-approval is a preliminary step, and final approval is subject to a property appraisal, title review, and other factors.

Dylan:

If you don’t find a house to purchase within your pre-approval, you must complete a new application and go through the process again.

It’s essential to be aware of the expiration date of your pre-approval letter and keep in mind that if you don’t sign a contract for a house within that time frame, you may need to re-apply.”

What not to do after pre-approval for a mortgage

After receiving pre-approval for a mortgage, it’s crucial to avoid making significant changes to your financial situation. When you are pre-approved, we recommend not doing this:

  • applying for new credit
  • making large purchases on credit
  • changing jobs or quitting your current job
  • co-signing on loan for someone else
  • changing jobs or leaving your current job
  • decreasing your savings
  • increasing your debt

 

What not to do after pre approval for mortgage - list

These actions can affect your credit score and income, affecting your mortgage application and your ability to secure a loan.

Dylan:

Maintaining your current financial stability is best until you buy a home and the mortgage loan process is complete.”

Mortgage pre approval - bank vs. lender

Where to get a mortgage pre approval - bank vs lender

Whether you choose a bank or a lender for pre approval depends on your specific situation and what you want.

Banks are traditional financial institutions that offer a wide range of financial products, including mortgages.

  • Banks (may) have stricter lending requirements and a more formal application process.
  • Banks usually offer more favorable terms, such as lower interest rates and a wider variety of loan options.

Mortgage lenders are specialized companies that focus solely on providing mortgages.

Lenders may:

  • Have more flexible lending requirements
  • Provide the quick application process (sometimes in less than 24h)
  • Charge higher interest rates
  • More limited loan options.

Ultimately, you should compare the terms and conditions offered by banks and mortgage lenders to determine the best fit for your needs.

Bottom Line

“Getting pre-approved is an essential first step toward buying a home. It lets you know what you can borrow and shows sellers you’re serious about purchasing their home.

As a trusted local real estate professional, I would be happy to connect with you to review the home-buying process and introduce youtube, one of my San Diego lending partners, so you have the tools you need to purchase a home in today’s San Diego real estate market.”

 

If you have any questions or you need a consultation with an experienced realtor, please call Dylan 📞 (619) 806-1519

He’ll answer in person. He’ll call you in less than 24 hours if he is busy now.