Loan Pre-Approval

Real estate professionals have always encouraged buyers to get pre-approved for a loan before they start looking for a home. Getting pre-approved for a mortgage helps you not only know that you can afford a home mortgage but gives you an idea of how much home you can afford.

So what’s the difference between pre-approval and pre-qualification? Pre-qualification can typically be done over the phone with a lender, does not involve a credit check and gives you a ballpark idea of how much you can spend. Pre-approval on the other hand, involves actually meeting with a lender to go over all your financial documents. The lender will run a credit check and some may even charge an application fee to process the pre-approval.

Here’s a closer look at the pre-approval process:

Find the best loan program to fit your situation

When you first meet with a lender, he will discuss all the plethora of loan options available to you and help you pick the one that best fits your situation.

Types of loans:

Government—ideal for low and moderate incomes because they have low downpayment and qualifying requirements. Government loans include Federal Housing Administration (FHA) and Veteran’s Administration (VA) loans.

Conventional—any loans not guaranteed by the government, come from private companies.

Mortgages can also be either be a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM). FRM have a constant interest rate throughout the life of the loan, while the interest rate on an ARM will adjust after a set number of the years to reflect the current interest rates.

Credit Search

The mortgage lender will also run a credit check as part of the pre-approval process. The borrower’s credit score and history will affect the amount of downpayment they may have to put down and even the interest rate they can secure.

Fill out loan documents

Another part of the pre-approval process is filling out the loan documents. Typically, a lender will need the following documents to pre-approve you:

1. A copy of your most recent bank statements (this includes your daily checking account as well as any money market, savings or other accounts)

2. Your most recent W-2 (or entire tax return if you’re self-employed)

3. Proof of IRAs or retirement accounts and their current balances

4. Stocks or mutual funds you own outside of retirement accounts

5. Your driver’s license

6. The most recent month’s paystub(s) from your job