Preparing to Buy a Home: Should I Get a Mortgage Pre-Approval?

So you’re thinking of buying a new home. You’ve been browsing the listings online, perhaps visiting open houses, and planning to view some homes for sale once the snow melts. Yet there’s something else you should do: get a mortage pre-qualification and pre-approval (yes, they are two separate things).

Pre-Qualification

Getting pre-qualified by a lender is the first step—it gives you a good idea of what you can borrow. You provide your income, debt, and how much you plan to pay as a down payment, and the lender gives you an estimate of how much house you can afford. This is often done over the phone, and you are not obligated to use that lender for a mortgage.

Note that if you get some or all of your down payment from your parents or another family member, you should deposit it in your bank account for at least two months, or obtain a gift letter explaining that the money is a gift, not a loan.

Pre-Approval

Pre-approval is the second step, and is much more involved process, because it tells lenders and sellers that you are serious about buying. If you find a home you love and a competing buyer has a pre-approval in hand and you don’t, you might lose out on your dream home.

You can usually get pre-approved within 24 hours after submitting the necessary documents. Some online sites can provide pre-approval immediately, but you will still need to provide the verification to a lender. As with pre-qualification, you are not obligated to use that lender for the loan, though most buyers do.

Documents You Need for Pre-Approval

·       Pay stubs and W2s (income verification from the past two years)

·       Two–three months of bank statements

·       Tax returns from the last two years (if self-employed)

·       Loan documents on your current home (if applicable)

·       Divorce decree (if applicable)

As always, if you have any questions about the process of buying a home or obtaining financing, contact me at 317.777.1805 or scott@lacysells.com.