One of the first steps you should take is to get a document showing you are preapproved. This states that a lender has confirmed that you have been approved for a specific amount of a mortgage loan program. It shows sellers and agents that you’ve prepared to buy their home which provides you with a stronger negotiating position.
Prequalification Verses Preapproval
Both prequalification and preapproval are helpful, yet serve different purposes. Prequalification estimates the amount you may borrow and helps prepare a budget for a house you can afford. Preapproval says that you have conditional loan approval and allows you to quickly proceed forward when you have chosen a home. To get a better idea of how they’re different here is a brief summary.
Prequalification Estimate
- Tells you approximately how much you can borrow.
- Uses financial information that you provided including income, assets and possibly a credit report.
- Fast, taking only a couple of minutes.
- Not guaranteed nor comprehensive, making it less trustworthy with realtors than preapprovals.
Preapproval For Mortgage Loan
- Sellers and agents view preapproved buyers as more valuable since they’ve initiated getting a loan.
- Underwriters verify income, assets and review credit checks as buyer completes application.
- Requires more time, up to several days or weeks.
- Conditional, without obligating the buyer to a particular lender.
- Requires the value of the home to appraise for at least the purchase price.
- Subject to satisfying the underwriter’s guidelines.
Lenders offer preapproval and prequalification for free since it helps the transaction be completed more quickly and smoothly for the buyer, seller and the underwriting process.
Financial Papers To Prepare
Lenders may instruct you on what papers to bring but here’s a list to save you time:
1. The past 2 years of W2 statements
2. The past 2 years federal tax returns, if self employed or you own more than 25% of a business.
3. The past 2 months pay stubs statements.
4. The past 2 months bank statements.
