Mortgage Pre-Approval Process
Whether you are a first-time home buyer or you are a seasoned buyer, it is important to understand what is involved in the mortgage pre-approval process. Pre-approval is not the same as pre-qualification and is more involved, but it can provide you with greater peace of mind. During this step, the lender will gather all of the information necessary to actually offer you a loan. This means that your credit report will be checked and you will need to provide permission for the lender to do that. You will also need to bring certain documents with you for your appointment with the lender. These documents typically include:
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- Copies of your most recent bank statements
- Most recent W-2 or entire tax return if you are self-employed
- Proof of retirement accounts or IRAs along with current balances
- Proof of mutual funds or stocks
- Your driver license
- Most recent paystubs
- Application fee; depending upon the lender
Once the lender has reviewed all of this information, he or she will make a decision about whether you will be approved for a loan and if so the amount for which you are pre-approved. If you are pre-approved for a loan, the lender will provide you with a good faith estimate or GFE. The good faith estimate is a document that details the terms of the loan being offered to you, such as the type of the loan, the interest rate, and the closing costs.
The mortgage pre-approval process is more time-consuming than being pre-qualified, but it is a necessary step in order to be certain of how much you can spend when shopping for a home as well as gaining negotiating power.
It should be kept in mind that the pre-approval process does not mean that the lender guarantees your loan. It simply means that you are approved to obtain a loan unless something changes. Commitment to the mortgage loan will typically come only after the lender has had the chance to appraise the house in question. This is to ensure that the price you are paying for the home is not more than the actual market value of the home. The goal of this is to protect you as well as the lender in the event that you default on the loan. In addition, the lender will also want to check the home’s title to ensure it is clear.
Finally, you should be aware that while the lender has checked your credit in order to provide you with pre-approval, it is conditional approval. This means that if your credit report or financial circumstances dramatically change between the time that you are pre-approved for the loan and the date of closing, your loan could still be denied. To avoid this problem, make certain that you do not make any large purchases prior to the closing of your home. If you wish to buy new furniture or appliances for your new home, wait until after the loan has closed.