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.
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.
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.”
To get pre-approved for a mortgage, you typically need to provide the following information to a lender:
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
“Spend some time looking for the best rates and terms from multiple lenders.“.
Here is the list of the first five most reviewed mortgage lenders in San Diego on Yelp in January 2023:
You can see the whole list on Yelp, the most reviewed page.
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“.
The time it takes to get pre-approved for a mortgage can vary depending on the following:
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.
“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.”
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.
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.
“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.”
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.
“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.”
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:
These actions can affect your credit score and income, affecting your mortgage application and your ability to secure a loan.
“Maintaining your current financial stability is best until you buy a home and the mortgage loan process is complete.”
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.
Mortgage lenders are specialized companies that focus solely on providing mortgages.
Ultimately, you should compare the terms and conditions offered by banks and mortgage lenders to determine the best fit for your needs.
“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.