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How Preapproval Can Help Streamline Your Home Buying Process
Ask any homeowner, and they’ll tell you that there’s nothing like the day you discover that perfect home that’s meant for you (which is why we work so hard to help you find it!). When it happens, you want to make sure you’re prepared to act quickly and make a competitive offer that will resonate with the sellers. So even if you’re just in the “searching” stage of the home buying process, it’s smart to get preapproved right away.
The benefits of getting preapproved:
- Sellers take you more seriously. Getting preapproved is a simple way to show sellers that you’re a serious, motivated buyer – and if they have more than one offer on the table then it’s likely they’ll choose yours, since there’s a better chance that the deal will go through with a buyer who is preapproved than one who is not.
- You’ll have an easier time finding the right loan. Once you’re preapproved, you’ll have a base to begin “comparison shopping” between different lenders and types of loans. When you’re buying something in the thousands (not to mention the millions!), even a one-point difference can make a big impact on your wallet.
Preapproval versus Prequalify – What’s the Difference?
Getting “prequalified” is when a lender reviews your financial situation and gives you an estimate of how much you can afford. Keep in mind that the amount you can afford may be smaller than the amount the bank is willing to loan you. Getting prequalified can help you stick to your price range, rather than the maximum loan amount.
The preapproval process is more substantial (we’ll get into the details in just a moment), but you’ll end up with a preapproval letter that states the actual size of the loan – and it’s this letter that holds weight with sellers. If you’re serious about buying a home, getting preapproved is a smart first step.
How Does the Preapproval Process Work?
First, you’ll be asked to fill out an application with a lender. The lender will gather a variety of background information regarding your income, employment status, and tax forms. Specific documents you may be asked to submit to a lender for preapproval include:
- W-2 statements, or 1099s, for the last two years
- Copies of your most recent bank statements for all accounts including checking, savings, etc.
- Recent paystubs from your job and proof of any other income you may have
- Proof of assets such as IRAs, stocks, bonds, or mutual funds
- Some lenders require an application fee – be sure to ask!
Once you complete the process, you’ll receive a preapproval letter that includes details such as the interest rate, type of loan, closing costs, and your estimated monthly payment. This letter is a non-binding, good faith estimate (and it’s time-sensitive, usually good for about 60-90 days). Keep in mind that being pre-approved does not guarantee that a lender will give you the loan – it simply means than if nothing in your financial situation changes, you’re likely to get a loan. When the seller accepts your offer on a home, the lender that has preapproved you will then formally approve your loan.