A preapproval means that a mortgage loan officer has looked at your income, assets, debt and credit history in detail to paint a picture of your loan worthiness. They use this information to determine how much of a loan it is safe to offer you. Once they calculate that amount they will issue you a preapproval letter.
Do I Really Need a Preapproval to Look at Homes?
Lets look at life without a pre-approval to find out. Hypothetically, you find a Realtor that is willing to show you homes sans preapproval. In your search, you find THE home. Its literally perfection and the closest thing to living in heaven on earth (is reading these blog post as fun without the dramatics? lol). You ask your Realtor (who’s probably aware that its rare that anyone takes an offer without a letter attached to it) to submit an offer for this home. She does and the sellers agent states the offer is the best out of the four she has received but the seller will need a pre approval letter before she accepts, otherwise its in her best interest to go with another offer. Now you need to gather all of your financials (pay stubs, bank statements, taxes etc) and get approved by a loan officer before the agent can hang up and call the next person to accept their offer, otherwise your slice of heaven on earth just went POOF! Its over.
Whew! Okay now I’ll tone down the dramatics. Its customary to have this letter in hand, because it would be a waste of your priceless time, your beloved Realtors time and will cost you major heartbreak to see a home of your dreams without one. Most Realtors won’t even start to talk business without it because they are aware of the roadblocks ahead. If you are serious about purchasing a home, you need a preapproval letter. It proves your credibility and makes sure you won’t waste time looking at million dollar homes when you really can afford two million dollar homes ( I’m an optimist, but you get it).
I’m Prequalified. Thats the Same Thing Right?
Prequalified means you told the loan officer ” I have $6k of debt, I earn $7k monthly and I have money in my 401k account”. He responds ” based on that information you would probably qualify for a loan around X amount”. Theres nothing factual here and he has not committed to saying his business will back you with a loan.
Preapproved means the loan officer has physical proof of what you have earned, how much debt you are in and has ran your credit report. He is aware of the facts of your financial story and can then provide a preapproval based on those facts.
So What Documents Do I Need to Provide
The quickest way to get your preapproval is to have everything in order and give it to the loan officer all at once. So what is “everything”?
- Drivers licence
- Social Security number / Green Card
- Pay stubs / proof of all income
- W-2 forms
- 2 years of income tax returns
- Bank statements
- Gift letter (if someone is giving you deposit money)
- 401k , IRA Stock and/ or Mutual fund Statements (if applicable)
It is important that you tell the truth to your lender. Lies and omission of details will only result in your heart break later in the process (sometimes at the closing table YIKES!).
So that’s it. Its an easy and very worth it process that usually take 24 hours or less. This is the first step to your homeownership journey, I’m happy to be the Realtor to guide you through the remainder of this process if you’re ready.
Have questions about your specific homeownership journey? Email me at [email protected]