6 Steps for the Mortgage Pre-Approval Process

Before contacting a realtor, you will need to first contact a mortgage professional to guide you through the mortgage pre-approval process. It does not make sense to go hunting for a house only to realize later that you cannot afford it. No matter what that snazzy online mortgage calculator says, only a mortgage pre-approval process can determine with finality what mortgage plan you should apply for.

To be certain about your eligibility for a home loan at a predetermined interest rate, you will need to go through a mortgage pre-approval process. The last thing you want is to go through the rigorous mortgage process only to end up with an interest rate you cannot afford. To be on the safe side, you need to be acquainted with the mortgage pre-approval process, which involves the following steps.

1. Get Prepared

Start by doing a little due diligence or audit of your preference and ability to buy a home. You will need to establish what kind of home you can reasonably afford. Do some research on what a potential lender will be looking for.

2. Pre-approval Takes Time

The mortgage pre-approval process takes time, sometimes up to four months before you actually buy a home. It could take a shorter period than this, but, to be on the safe side, give yourself enough time to go through the rigours of pre-approval. The process involves evaluating documentation on the source of your down payment, proof of income, your liabilities and assets. A prospective lender will also access your credit report to determine your creditworthiness.

3. Documentation

You will be required to provide certain documentation during the pre-approval process. This will include a photo ID, proof of employment, evidence of paying income tax and other financial statements, a document showing your current salary and length of employment, bank accounts, investments, proof of existing assets such as cars, boats, liabilities, credit card balances, existing mortgages, car loans, liens, child support, co-signed or guaranteed loans, lines of credit, student loans etc. In most cases, a hard credit pull should be able to provide a lender with a comprehensive picture of your creditworthiness.

4. Only the Interest Rate Is Guaranteed

Once you have gone through the above audit and a lender decides you are a good fit for a home loan, you might receive a certificate of pre-approval. However, the only guarantee a lender gives is that you qualify for a certain interest rate. The pre-approval process, however, does not guarantee approval of your mortgage application. It is important to understand that you are not duty-bound to get a mortgage from a lender on the basis of pre-approval.

5. Pre-Approval Expedites the Mortgage Process

Mortgage pre-approval fast tracks your home buying process. This is because a lender has a clear picture of your creditworthiness. Since they already have a file on you, you can proceed with confidence in soliciting for offers that you can afford based on the pre-approved interest rate. Getting pre-approved also tells a realtor that you are serious about buying a home, which means you might end up with a better offer compared to a buyer who is not pre-approved.

6. Interest Rate Guaranteed for a Given Duration

The beauty of having a guaranteed interest rate is that it protects you from rising interest rates. Any increase in rates during the duration of your pre-approval will not affect you. However, should the rate fall, you will be eligible for the lower rates.

A mortgage pre-approval determines whether you meet a lender’s requirements for a home loan. It is different from mortgage pre-qualification since the latter only provides a cursory look at your financial situation.