Introduction: Everything You Need to Know on How to Get Preapproved for a Mortgage
Searching for your first home or your fifth home is always an exciting process.
Finding the perfect place where your children will one day grow up and where even your grandchildren may come to play is a serious decision and one that shouldn’t be taken lightly.
If you are considering buying a home but haven’t found out how to get preapproved for a mortgage, you may be setting yourself up for a major disappointment.
In most cases, mortgage pre-approval online or mortgage prequalification is the first and most important step in getting yourself and your family into the home that you love.
If you don’t prequalify for a mortgage, you might get beaten out by a more prepared buyer. In the worst case scenario, a seller might not even take your offer seriously if you can’t show a pre-approval letter or a mortgage prequalification. So what exactly does it mean to prequalify for a mortgage, and why should you learn how to get preapproved for a mortgage?
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In this brief article, AdvisoryHQ will give you a complete and thorough guide to help you understand the mortgage pre-approval process. We begin by explaining what it means to prequalify for a mortgage or get a mortgage pre-approval letter. We then offer advice on why every serious home buyer needs to take the time to go through the mortgage pre-approval process.
Next, we explain some of the benefits of getting a mortgage pre-approval online versus in person at the lending institution. We also offer step-by-step instructions to help you get preapproved for a mortgage. Finally, we offer some suggestions on the next steps to take once you have received your online mortgage pre-approval or mortgage prequalification.
What Does It Mean to Prequalify for a Mortgage or Get a Mortgage Prequalification?
Imagine the following scenario: You and your spouse have been relentless in searching for the perfect home for your growing family. After years of renting, you both think that you are finally prepared financially to purchase your first home, but you have been having a hard time finding a home that fits your budget and preferences.
When you see an ad for an open house in a neighborhood that you have been trying to get in to for months and finally tour the home, you know that you have found what you’re looking for.
There is one other serious bidder at the open house, and both of you approach the seller to make an offer. Though you are willing to up your price to outdo the other buyer, the seller asks to see your mortgage pre-approval letter.
While the other bidder quickly takes out their documents that show that they prequalify for a mortgage, you and your spouse admit that you don’t have a pre-approval letter and that you honestly didn’t have any idea on how to get preapproved for a mortgage. Even though you offered a higher bid than the other couple, the couple who own the home want a quick sell and choose the buyer who showed them their online mortgage pre-approval documentation.
When you prequalify for a mortgage, you are taking an important step that will show independent sellers and real estate agents that you are a serious buyer.
The mortgage pre-approval process is simply a process wherein you visit the bank or other lending institution and present them with certain financial details so that they can give you a pre-approval letter stating that you are eligible for a mortgage.
There is a slight difference between a mortgage prequalification and a mortgage pre-approval letter. Mortgage prequalification is a short, informal process wherein you meet with a lender and provide information on your assets, income, and liabilities.
Sometimes this can be done online. When you prequalify for a mortgage, the lender will let you know more or less how much you can borrow.
Mortgage pre-approval, online or in person, is a more thorough process wherein the lender will offer you specific terms for a particular loan amount. According to Investopedia:
“With pre-approval, the lender checks your credit and verifies your financial and employment information and documentation; this not only confirms your ability to qualify for a mortgage but approves a specific loan amount (usually for a particular period, such as 90 days).”
The Importance of Going Through the Mortgage Pre-Approval Process
Going through the mortgage pre-approval process is perhaps the most important and necessary step toward buying a home. While traditional wisdom says that it’s important to find the home you want and then try and get a loan, that logic can lead to problems. Rather, the first part of your home buying experience should begin at the lender’s office and not at an open house.
While learning how to get preapproved for a mortgage is important so that you can demonstrate to buyers that you are making a serious offer, getting a mortgage pre-approval online is also important so that you can have a more educated idea of what type of home to buy.
Image Source: My Lender Sean
When you prequalify for a mortgage, the lender will let you know more or less how much you will be able to borrow based on your income, assets, and liabilities. When you get preapproved for a mortgage, the bank will also check on your credit score and ask for proof of income and other more detailed documentation of your current financial situation.
There is nothing worse than finding the home of your dreams only to find out that it is $100,000 more than what you can get through a home loan. When you learn how to get preapproved for a mortgage, you will be finding out exactly what the bank will be willing to lend you. This mortgage pre-approval process will shape your search for the perfect home for your family and save you valuable time and effort.
The Benefits of Online Mortgage Pre-Approval
Imagine finding the home of your dreams, listed under price, on a hot market. You know that you have to act quickly if you want to have a serious chance of getting into this home. However, you don’t have a pre-approval letter, and you know that it would take several days to gather the paperwork, make an appointment at your local bank, and get preapproved for a mortgage.
In this case, the best option might very well be to get an online mortgage pre-approval. A mortgage pre-approval online is a quick process that might take between 10 and 15 minutes to complete. While this process carries less weight than going to the bank to get preapproved for a mortgage, it can be done quickly when you are in a tight fix.
Almost all major banks and lending institutions have information on their websites that will help you prequalify for a mortgage from the comfort of your own home.
Additionally, major real estate corporations like Zillow.com also offer their own service to help you get preapproved for a mortgage online. You can find out if you prequalify for a mortgage online with Zillow here.
If you are the type of person who likes to get several opinions, you can also check out Bankrate’s mortgage prequalification calculator. This calculator won’t necessarily help you get preapproved for a mortgage, but it will give you a good idea of what you might be eligible to receive from the bank.
Step-by-Step Guide on How to Get Preapproved for a Mortgage
If you are ready to buy a home and want to get started on the right foot, below we offer a step-by-step guide to get preapproved for a mortgage.
- Check out one or two independent online calculators (such as Zillow or Bankrate) to get a general idea of how you might prequalify for a mortgage.
- Find two or three large banks that have branches in your town and go spend 15 to 20 minutes doing their online mortgage pre-approval process.You should be able to get a general idea of which bank will pre-approve you for a higher amount.Though a $10,000 difference may not seem like much, that amount on your mortgage pre-approval letter might be enough to get you into the home of your dreams.
- Get your paperwork together for an appointment with the lending agency you’ve settled on.There is a pretty significant difference between a simple mortgage prequalification and when you get preapproved for a mortgage, which requires more paperwork.
- Set up an appointment with your local bank and make your case so that the bank offers you a pre-approval letter that reflects your financial potential.
- Find the home of your dreams!
Image Source: Georgetown Mortgage
Next Steps After Getting Your Pre-Approval Letter or Mortgage Pre-Approval Letter
Once you have a pre-approval letter in your hands, you have solid proof that you can prequalify for a mortgage. This document will help you find out exactly how much you qualify for. Many online real estate agencies will allow you to narrow your search for potential homes by price.
If you prequalify for a mortgage of $250,000, that will give you a pretty solid idea of what type of home you should be looking for.
Many potential homebuyers may take months or even years before they find a home that is suitable for them. If you have received a mortgage pre-approval letter that is more than a couple months old and your financial situation has significantly changed recently, then it is in your interest to get a new pre-approval letter.
According to Redfin.com, even if you get preapproved for a mortgage:
“be very careful about making changes to your financial picture. A pre-approval is NOT a guarantee for a loan. If you make major changes to your credit, debt, or assets after pre-approval, but before you secure a loan, you could jeopardize your chances of getting any mortgage at all. Lenders commonly re-check your credit within five days of your home purchase closing, and any significant changes to your score can derail your loan.”
Conclusion – Get Preapproved for a Mortgage to Solidify Your Financial Future
When you prequalify for a mortgage, you are getting a head start on other potential home buyers. The difference between showing up at an open house with a pre-approval letter and empty hands can make all the difference.
Even if you simply do an online mortgage pre-approval, you will have some sort of documentation to show that you are a serious buyer. If you want more detailed information, setting up a date with your bank to see if you can get preapproved for a mortgage will give you a clearer picture regarding your financial opportunities.
Taking the time to prequalify for a mortgage is an essential part of any home-buying experience. Following the directions laid out above will help you get the best pre-approval letter in order to get into the home you and your family desire.
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