Are you buying a house? If so, congratulations! This is an exciting time for you, your family, and your future. Before you start looking, it is important to get pre-approved for a mortgage. The pre-approval process is simple and will set you on the right course to homeownership.
Some buyers wonder if pre-approval is worth their time. Others may question whether a pre-approval letter is needed when the market is changing or when rates are low. You should get pre-approved regardless of market trends, and here’s why.
In a Seller’s Market: In today’s market, pre-approval is essential. Why? When offers are plentiful and homes are scarce (i.e. a seller’s market) you need to show the seller that you have the financing to back-up your offer.
When Rates Are Moving: It is important to get pre-approved if rates are likely to trend upward during the course of your home search. Having the first steps to financing in place will make it possible to lock your rate when you and your real estate team are ready.
In Any Market: In any market, pre-approval is beneficial because it lets you and your agent know what you can afford and how much your payment will be.
I already own a house. Do I need to get pre-approved?
Yes, pre-approval will still benefit you even if this isn’t your first home purchase. You’ll learn how much house you can qualify for and what your payment might be. Plus, you’ll have more negotiating power as a buyer if the right home hits the market. Another question sellers need to answer is whether they can make an offer on a new home before selling their existing one. Pre-approval will help you determine the best timing regarding the closing date for your purchase transaction as well as for your sale.
If you’re getting into the investment game, pre-approval can help you determine whether it’s feasible to rent your existing home instead of selling.
How soon should you get the financial gears turning? Pre-approvals last 60 to 90 days. If your pre-approval expires, your lender will need updated documentation and an additional credit pull. This isn’t a huge issue financially, but it will cost you some time and maybe a few points on your FICO ® score.
The most important factor when it comes to timing is to get pre-approved before you start looking for a home and certainly before you make an offer.
If your pre-approval letter comes from a solid, respected lender, you only need one. You may want to shop around to see what different lenders can offer in terms of financing, but keep in mind that pre-approvals will result in a credit pull. This shouldn’t adversely affect your credit score by much, but lenders or other creditors may ask you to explain the multiple inquiries on your report. According to the Experian blog, a hard inquiry resulting from a mortgage preapproval credit check might reduce your score by a few points but “this score reduction is usually short-lived.”
Mortgage loans are underwritten using the Uniform Residential Loan Application (URLA). You’ll be asked all the basics: Name, address, where you work, your monthly income, how much money you have in the bank, and how much money you owe to others. The URLA also asks about properties you own, your address history (if you’ve lived at your current location less than two years), and the funds you plan to use for a down payment. You will also answer some questions regarding demographics and military service.
For a pre-approval, much of what you disclose on the URLA will be assumed true. Documentation, such as bank statements and tax forms, will be required before the final approval is issued. You will need to provide your social security number so the lender can pull your credit report. In most cases, a credit score is required before a pre-approval letter can be issued.
Use our calculators, guides, and other resources to boost your homebuying know-how. Start off strong to find that dream home and get preapproved online in just 10 minutes. Contact a Ruoff Home Loan Advisor at one of our 70 locations across the country. We'll guide you through the process of buying your dream home.