When you’re looking to buy a new home, it may feel like there’s a surprise around every corner. Literally. Maybe the house you’re viewing has an amazing master bath or your dream kitchen. Maybe there’s a playroom for the kids or a cozy back porch. House hunting can be fun.
What’s not fun, however, is the surprise of finding out you can’t qualify for the house with the cozy back porch after your heart’s set on it. You don’t want any surprises when you try to qualify for a mortgage. That’s where the benefit a pre-approval comes in.
Obtaining a preapproval is one of the first steps you should take in your house hunting process. A mortgage pre-approval lets you know how much of a loan you qualify for, which makes home shopping easier. Not to mention, with a preapproval, sellers will view you as a serious buyer, putting you in good standing in their eyes when you begin to make bids on homes, especially if there are multiple offers. A preapproval may also allow your loan to close more quickly, another factor sellers find appealing.
The preapproval process allows lenders to assess your credit worthiness without you having to sign a purchase contract. You complete a mortgage application, giving a lender permission to look at your income and assets, as well as pull your credit score. Once you’re preapproved, you’ll receive an official preapproval letter, which specifies the loan type and amount of financing you can get. This benefits you in a couple of ways. You can share the letter with both real estate agents and sellers, showing them that you can afford the homes you’re looking at. And it puts you at an advantage by giving you an early picture of your mortgage potential, revealing what your monthly mortgage payments could look like and allowing you to make the strongest offers possible for your financial situation.
A preapproval letter does not bind you to that lender – you can choose the lender that best meets your needs when you are ready to move forward – but it also doesn’t guarantee the lender will ultimately approve you for the amount in the letter, especially if your employment status or financial circumstances change. Preapproval letters are typically valid for 45 – 90 days, depending on the lender and the terms outlined in the preapproval. Your lender may offer a simple renewal of your preapproval letter if it is expiring.
Certified Approvals and Lock & Shop
When it comes to preapprovals and securing a loan for home purchase or refinance, you can benefit from a couple of our unique offers, both of which give you more buying power.
First, at AmeriSave, we offer a Certified Approval, which is stronger than a general pre-approval. Other lenders will pre-qualify you for a loan – what’s also called “pre-qualification” – but most won’t commit to a rate until you’ve found your property and are under contract. If interest rates go up before your loan goes through, your rate could increase. At AmeriSave, we give you a Certified Approval Letter that includes the underwriting approval of your credit and income – the next best thing to a cash offer when you’re shopping in a competitive housing market. Unlike a typical pre-qualification, our Certified Approval locks in your rate with AmeriSave for up to 90 days. That gives you the time you need to find the right home with the confidence of knowing you can make an offer immediately with a loan you can afford.
Secondly, with our Lock & Shop program, this rate lock is good for up to 90 days, meaning that you can house hunt with peace of mind, knowing you are protected against rising interest rates and that you can estimate your monthly mortgage payment for a property you love. Even if you haven’t found your dream home yet, you have time to shop worry-free, knowing you have a competitive mortgage rate locked in and a Certified Approval for a mortgage within your price range. And if for some reason your loan doesn’t close at the rate you’ve locked, through no fault of your own, we’ll pay you $1,500.
Preapproval vs. Prequalification
You may think a preapproval is synonymous with a prequalification, but they’re technically not the same. Think of a prequalification as preapproval lite, if you will.
While a prequalification still helps lenders estimate how much you can afford to spend on a home, it’s just that – an estimate. With a prequalification, you don’t have to provide the same level of financial information as you do with a preapproval. Rather, you provide an overview of your finances and income. You don’t have to supply pay stubs or bank statements. You also don’t have to have what’s known as a hard credit pull, as you do with a preapproval. Hard credit pulls show up on your credit report and therefore can affect your credit, though usually not significantly. Also, multiple credit inquiries from multiple lenders in the same time period shouldn’t impact your credit. In fact, going through the preapproval process with multiple lenders can help you find the ideal loan and interest rate. While a prequal can be a useful tool in the beginning, it isn’t as valuable as a preapproval when you get serious and start making offers to buy a home.
Again, AmeriSave offers an advantage here. While pre-qualification lets you know the rate and loan options that would likely be offered you, our Certified Approval means that we have underwritten, approved and certified that you are income and credit-approved for your mortgage loan. Once you have Certified Approval and know your new mortgage rate (if you have chosen to lock your rate), you’ll be able to confidently calculate your monthly payment on any home you are considering purchasing.
When To Get Preapproved
Say you are ready to get serious – should you get preapproved? To determine the right timing, keep in mind that preapproval letters are usually valid for a couple of months or so. But don’t let this keep you from obtaining a preapproval, even if you think it may take you six months or more to find your dream home. When your letter expires, you can submit a new preapproval request and submit updated documentation. As we’ve said, having a preapproval, especially in competitive housing market, ensures sellers consider you to be a serious buyer. Bottom line: As soon as you start house hunting, get preapproved.
How the Process Works
Be prepared for mortgage lenders to assess the following factors before they preapprove you:
- Employment history
- Credit history
- Outstanding debts and liabilities
- Debt-to-income ratio (DTI), which is an essential loan factor that compares your gross monthly income against your monthly debt payments
Next, you can expect lenders to ask for documentation to verify the preceding factors. It helps to be organized.
Gather these documents ahead of time:
- Proof of income, such as pay stubs and W-2 statements
- Additional income documentation if you’re self-employed (Full list of documentation needed for self-employed homebuyers here)
- Bank statements
- Asset account statements to show investment income, retirement savings, etc.
- Tax returns
- Driver’s license and Social Security number
- Debt information, including car loan documentation
- Gift letter, if applicable
Once your documentation is submitted, the process typically moves quickly. A lender will either (1) pre-approve you, (2) pre-approve you with conditions, or (3) deny you. Preapproval is great! If you’ve got your preapproval and you find the home you want, your lender will update your preapproval with a property address and get started on the next step, which is having an appraisal done.
If you’re preapproved with conditions, this is still good news. You’ve got some pending items to take care of, such as providing missing documentation or answering additional questions so you can work toward full preapproval. If you’re denied, your lender should provide an explanation of exactly why this happened. You may need to try and improve your credit score or resolve other issues relative to your income or bank accounts before you apply again.
As you work through the process, remember that AmeriSave is here to support you every step of the way. Talk to us about everything from Certified Approvals to other ways we strive to make the entire loan process easier on our customers. Remember that we offer the speed and confidence of getting the lowest rate that no one else offers, and our trusted mortgage bankers are here to collaborate with you … so you can enjoy that cozy back porch.
1 The loan must be closed and funded prior to the expiration of the rate lock.