Why Get Pre-Qualified?
In recent years, mortgage guidelines have been tightened. Documentation requirements have been expanded and followed more closely. A pre-approval gets you through the process and uncovers potential pitfalls long before you become obligated by a contract to purchase.
1. Pre-qualification acts as a dry run of the loan application process. The mortgage lender will use details you provide about your credit, income, assets and debts to arrive at an estimate of how much mortgage you can afford. The whole process may take only minutes or a few hours at most, and is free.
2. While a "pre-qual" is non-binding to the lender (because the information you provide has not been verified), it does serve as a good indication to potential sellers of your general creditworthiness.
3. These days most sellers will NOT accept an offer without at least a pre-approval letter, so if you are serious about buying this is the first step towards getting you in your new home.
Frequently Asked Questions?
1. What advantages will I have once pre-approved? You'll be certain about the price range that is best for you. You will know how much cash you will need to close, and you will know your maximum monthly payment. Understanding your limits will help you negotiate with confidence. Plus, since sellers like a sure thing, you will have an advantage over buyers who may not have been through the process.
2. How long is the pre-approval valid? Your pre-approval is typically good for the "shelf life" of the documents used. These will include a credit report, pay stubs, bank statements, W2s, tax returns, etc. The usable life of these documents will vary, yet it is usually safe to say that your approval is good for up to three or four months. During this time, it pays to file all important financial documents, so they are readily available for future updates.
3. What if I change my mind? That's perfectly fine. There is no obligation to purchase a home or use a particular loan program once you have been pre-approved. In fact, pre-approval simply helps to assure you know exactly what is involved, that you are comfortable in a particular price range and that you are truly ready to make your move.