What does it mean to be pre-approved?
We have all opened the mail to discover that in the pile of the bills is a pile of credit cards claiming you are pre-approved for their new offer. In this context, pre-approval may or may not matter. However, when buying a house, pre-approval is a major benefit to the buyer and the seller. Pre-approval is like a recommendation letter from the lender. Sellers want to know that those buying their homes are capable of making the payments. Buying a house is a bigger financial burden than a school loan or a car. When you are pre-approved, the lender is giving their bode of confidence that you can make the payments. While sellers usually prefer to sell to those who have already proved their financial stability buy owning a house in the past, being pre-approved by the lender gives proof of lenders confidence in a first time buyer. Not only does it show that you are capable of making the payments, but it allows the seller to be free of the extra burden of checking your credit history.
Advantages of Pre-approval
Being pre-approved offers several advantages over those buyers who are not pre-approved. First, it allows you to know the maximum you are able to spend on a house. This provides a more target house range for shopping while not falling into the cracks of unforeseen financial fees. Second, sellers are more likely to accept the bid of one who is pre-approved over those whose financial status is still being reviewed. This could help speed the process of buying a house. Third, the normal 30 day period in which to find a mortgage lender is much easier if one is pre-approved. Also, if the seller is in a hurry to sell, pre-approval gives the buyer a bargaining chip to maximize his costs. If buying a house for the first time, it seems very beneficial to pursue a pre-approved status.
How do I get Pre-approved for a Loan?
When you are pre-approved, it means that a lender has looked very closely at your credit history, income, and more than likely has recommended the best type of loan for your present financial situation. Since your credit history is the main factor in determining your pre-approval, your loan officer will need copies of your W-2 forms, pay stubs (usually from one month), bank statements (including checking, savings, and other financial assets), and tax returns (usually two years worth). Such information allows the lender to assess your buying power, the risk involved for the lender, any unforeseen debt in the future, and financial stability.