February 20, 2020
Pre-Approval Letters: EVERYTHING You Need to Know…
We get it…the decision made to move into a new home is exhilarating (and also a little nerve-wracking) You browse the different real estate apps and maybe even fall in love with a home. Then the words “pre-approval letter” are mentioned and you are halted. Why are pre-approval letters such a big deal?
What is a Pre-Approval Letter?
A pre-approval letter is a statement from a financial institution that details the amount of money you are pre-qualified to spend on a mortgage. This does not guarantee you will get that mortgage but the institution believes you will based on the current financial details. Unless you are paying cash for a house, a pre-approval letter is a must before you can ever set foot inside a potential new home.
Why Do I Have to Have a Pre-Approval Letter?
There are several reasons you, the sellers, and your real estate agent require a pre-approval letter before beginning the home buying process.
- A pre-approval letter lets you know the maximum amount of money the lender will allow you to obtain for your mortgage. There is nothing worse than falling in love with a home only to find out it is out of your price range.
- The pre-approval process also gives you a more accurate idea of what your monthly payments would be after purchasing a home at that price. Knowing this information helps you to realistically create a future budget and know how this mortgage note would affect your day to day living funds.
- Most real estate agents require mortgage pre-approval before ever showing you a house. It is a waste of both their time and yours to visit potential properties without knowing there could be a possible purchase. In the same manner, most sellers prefer a buyer who has done their homework and obtained pre-approval when accepting an offer over one who does not have the verified financial backing. In other words, making an offer on a home without a pre-approval letter is a red flag to sellers. They know you may not have your finances in proper order and the sale may not go through. If you want to be taken seriously by the seller, get a pre-approval letter before making an offer.
- With pre-approval on your mortgage already in hand, the actual mortgage process goes much more smoothly. All of your financial details will be shared with your lender to qualify and receive your home loan. By obtaining a pre-approval letter, a large chunk of these financial details will already have been researched.
How Do I Get a Pre-Approval Letter?
Beginning the process is simple and only takes a few minutes. First, you will fill out our online application. Once that has been received one of our loan officers will contact you to get the needed information. This includes:
- Name, social security number, date of birth, phone number and email.
- Your current mortgage details including your address, type of home (single-family, townhome, lot, farm, condo, duplex) its estimated value, your current mortgage balance, mortgage payment, your annual taxes, and your annual home insurance.
- Addresses for the places you have lived for the past two years
- Current employer, position title, employment start date, and their contact information. Employment history covers the past two years. If you have changed jobs in that time frame, all details should be included. If there are gaps in your work history (illness, disability, the birth of a child or other life event that caused you not to work) those details need to be provided also.
- Income: This is your gross monthly income. It must be separate from any bonuses, commissions, or overtime payments. If you want to include bonus, commission or overtime pay you must be able to show that you have received those incomes for at least 2 years. Your total income will then be averaged over 24 months.
- Assets: Your bank name and current balances of checking, savings, and any applicable money markets. These are the funds that are normally used to provide the down payment on your home and the lender needs to know where that money is coming from. If you have stocks & bonds, mutual funds, IRA’s or any other assets they are not normally required but can be listed if your loan requires reserves or if you are planning on using these to pay the down payment.
- Real Estate: If you own any property currently it needs to be declared.
A Few More Things to Know…
When applying for a pre-approval letter your credit history will be checked. If there are discrepancies on your report that can be easily remedied, it would help to do that before you begin the process. You can check your own credit report via the Free Trade Commission here.
A pre-approval letter does NOT guarantee you will be approved for a mortgage. It simply says the lender is willing to lend you a certain amount pending further confirmation.
If you are not approved during the pre-approval process, don’t give up. Our experts here will explain in detail why you were not approved and what you need to do to fix it.
We know this seems like a lot but don’t get overwhelmed! At Method Mortgage, we make the process as simple and stress-free as possible. (We have been doing this for over 13 years!) Contact us today to get started on your pre-approval letter and into the home of your dreams!