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Updated: May 22, 2019

Shopping for a home before getting pre-approved for a mortgage is the equivalent of getting into your car before you know where you want to go. Yet, the majority of homebuyers sit and procrastinate on this process during the house hunt.

If you have purchased a home or your currently looking to purchase a home, you've probably heard this term time and time again. So, what is a pre-approval? What is the difference between a pre-approval letter and a pre-qualification letter?

The biggest difference between a pre-qualification and pre-approval is that during the pre-qualifiction stage, the borrower verbally tells the lender basic information such as income, savings, credit scores, properties they are interested in, their monthly debt obligations, how much they want to spend etc... During the pre-approval stage, the borrower actually provides the documentation to support all the information that was discussed in the pre-qualification stage. In order to obtain a pre-approval letter, an underwriter verifies the borrower's information and documentation to determine exactly how much it would be willing to lend that qualified borrower.

The documents to get pre-approved are basically the same documents that you would need to get a mortgage commitment. However, a mortgage commitment is only issued after a property address has been identified.

Documents include:

  • Paystubs.

  • Last two year's W-2's.

  • Last two federal tax returns.

  • Two months' worth of bank statements of all types of accounts.

  • Credit Report

A pre-approval is not a loan commitment without a property address, but it carries with it huge benefits to homebuyers and realtors.

Here are two reasons it's a MUST to get a mortgage pre-approval before you go house hunting.

No.1: We are in a competitive market

Buyers are often excited to start looking at homes and tend to leave this boring and tedious task of getting pre-approved for last. This may make sense at first, why spend time on gathering documents when you haven't even found a home yet, right? Wrong.

If you are working with a good realtor that really understands your needs and knows their market well, you may find that dream home faster than you expected. When that happens, I can almost assure you - NO PRE-APPROVAL, NO ACCEPTED OFFER. So if your realtor has decided to show you homes without you being pre-approved, you should know that many listing agents representing the seller most certainly will not consider your offer unless you are pre-approved.

"It happens every day," says Veronica Meola, director of sales and manager of Berkshire Hathaway HomeServices in Eastchester, NY. "I can't believe we still get offers today without a pre-approval."

As with many other agents and sellers, Meola says she rejects offers from buyers who don’t have pre-approval letters from their banks.

“You have to have a pre-approval and it must be a real pre-approval where the lender has verified not just your credit, but bank statements, tax returns — and we call the lender to verify that,” she says.

Give yourself and your realtor the best shot of getting your offer accepted by going in with a strong pre-approval letter.

Start by seeing if you are pre-approved for a mortgage today by clicking here.

No.2: You need to know where you stand

There may be several reasons why you have decided to put off the loan application: avoiding the tedious paperwork, not understanding the importance, not wanting to share all the private information yet or maybe it's a little bit of fear.

Many of us may be guilty of avoiding the doctor's office because we are afraid what we may find out, that something is wrong. If you have a fear that you may not get approved for the amount you were hoping for, isn't it better to know sooner than later? Just like that dreaded doctor's visit, it's best to know and catch things early.

You will be surprised how many things can be worked out if caught in the early stages and a good game plan can be laid out by your loan officer. Things like credit blemishes can sometimes be fixed in weeks.

The point is, don't wait and waste your time. Find out now if there is anything that can be done to put you in the best possible position when the time does come to move forward.

To schedule a consultation and review your current situation, click here.

If you found this #homebuyertip useful, please "Like", "Share" or "Comment."

Mario Trotta is a full service mortgage broker providing Westchester County NY qualified homebuyers and homeowners a variety of loan programs including FHA, VA and Conventional loans.

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