First thing you are probably wondering is what does a mortgage pre-approval mean? It means a lender has guaranteed to give you a home loan and getting pre-approved for a mortgage before you make an offer can give you a huge advantage when you’re competing with all the other home buyers in a competitive housing market.
How to get pre-approved for a mortgage: The paperwork
Prepare yourself for the load of paperwork you will need to provide to earn your mortgage pre-approval. Altogether, you will need to assemble the following paperwork for your lender:
- Pay Stubs from the last 30 days showing year-to-date income
- 2 Years federal tax returns
- 2 Years of W2 forms from your employer
- 60 Days or a quarterly statement of all your asset accounts, which include checking and savings, as well as any investment accounts such as CDs, IRAs, and other stocks or bonds
- Any current real estate holdings
- Residential history for the past 2 years including landlord contact information if you rented
The Difference Between Pre-Approval and Pre-Qualification
Pre-approval and mortgage pre-qualification should not be confused. Pre-qualification is based solely on verbal information about your income and savings that you tell a lender. It shows how much you could theoretically borrow but it isn’t a guarantee. This means buyers will have to officially get approved for a loan later on and hope for good luck. Pre-approval, on the flip side, means the lender is willing to loan you the money. Then you’ll have an official letter from the lender stating so and that will go miles with a seller.
How Pre-Approval Helps Buy A Home
When a seller accepts an offer, they want nothing more than the deal to go through. However, if the buyer isn’t pre-approved for a loan, this can put the entire deal out on a limb, because if the loan does not get approved, the buyer will likely be unable to follow through.
A pre-approval ensures that extra measure of security to a seller that you are both willing and able to buy the house. As a result, sellers will likely pick you as a buyer over another buyer without pre-approval since you are a sure thing and they won’t have to worry that the deal might not go through. So, even though pre-approval is a pain in the rear, you’ll have to saddle up all that paperwork eventually. You might as well do it right out of the gate, get a jump on the competition and shop for the home of your dreams with ease!
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