The Importance of a Mortgage Pre-Approval

When you are thinking about buying a home, as a bank, we are both the first and the final piece of the puzzle. With that being said, you need to begin the pre-approval process before you begin shopping for homes.  Why is this the case and how do you go about obtaining a pre-approval?

When you go to shop for a home, often times you will contact a real-estate agent in order to show you available houses that fit your needs.  Most agents will ask you for a pre-approval letter before showing you any homes.  In today’s market especially, if you want to put an offer on a house you like, you will need to prove that the financing is in place.  This is where a pre-approval from a reputable lender is essential.

To obtain a pre-approval, first you need to sit down with a lender at a local financial institution.  As a borrower, you will be asked for the following information:

  • Income –> the amount of money you receive, on a regular basis, through work or investments.
  • Assets –> the current amount of money you have in the bank for a down payment. Also, investment accounts, retirement accounts, and any other financial assets you currently hold.
  • Liabilities –> such as credit card debt, student loans, car payments, or any other obligation you are currently paying on a regular basis.

All of the above information will need to be verified by providing the following documentation: bank statements, pay stubs, 2 years taxes and W2’s or 1099’s, a valid driver’s license or state ID, and a credit inquiry. Other documentation may be asked of you depending on your individual circumstance.  For example, if you have been through a bankruptcy, a divorce or if you have had a short-sale or foreclosure in your past, you may be asked for some additional paperwork.

A lender will process all the above information. It is then sent to an underwriter to be underwritten and approved.  Once he/she determines if you qualify, a pre-approval letter will be drafted stating that you are eligible to purchase a home at or below a specific price level.

It is important to know the difference between a pre-qualification vs. a pre-approval.  Some institutions will issue a pre-qualification within minutes without doing any of the underwriting.  The problem with that method is that a pre-qualified buyer could still run into trouble in the underwriting process.  Sellers and their agents know this and will treat pre-approved offers more favorably because a pre-qualified offer could still fail in underwriting.  This could lead to a deal falling through causing unhappy buyers, sellers, and agents.

When you obtain a pre-approval from a strong and reputable local lender, it shows real estate agents and sellers that you are a serious and credible buyer.  For more information, please feel free to reach out to any of our local mortgage experts.

Robin Palmer






Robin Palmer – Mortgage Lender