Buying a home is a big financial decision, and here at The Davis Real Estate Group, our agents are committed to helping you throughout the entire home buying process. In a competitive market, you will need every advantage you can get, which is why we always recommend securing home loan pre-approval before you make an offer on a home.
Most people looking to buy a home do not have the necessary funds to make a cash purchase, meaning they will need to secure a new home loan from a lender. For sellers, this adds a layer of risk: if the buyer cannot secure financing, the home sale will fall through. This can make it difficult to compete with cash offers, but not impossible.
As real estate agents, we recommend getting pre-approved for a mortgage before you begin to get serious about home shopping. Here is some important information you should know about getting pre-approved.
What is Home Loan Pre-Approval?
A home loan pre-approval, or a mortgage pre-approval, is a document from a lender stating that they are tentatively willing to lend you up to a certain amount for a mortgage. When you go through the home loan pre-approval process through a lender, they will tell you which types of mortgages you qualify for and how much house you can buy.
Mortgage pre-approvals benefit the buyer by giving you a realistic estimate of what you can expect from a mortgage. A lender will look at your job, credit score, and other information to determine the following data:
- Maximum purchase price
- Anticipated interest rate
- Estimated monthly housing payment
Keep in mind that a pre-approval doesn’t necessarily mean you should take out a loan for the maximum amount. It’s important to consider whether you can afford the monthly payment in addition to the other home-buying costs, such as the down payment and closing costs.
It’s also important to note that receiving a home loan pre-approval does not guarantee that you will be approved for a mortgage. However, it does give you realistic expectations for how much you can borrow if you do get approved for a new home loan. Having an estimate before you begin home searching will help you stick to your budget.
How to Get Pre-Approved for a Home Loan
Every lender has a different pre-approval process, so you will need to make sure you follow their guidelines when it comes to securing a home loan pre-approval letter. However, there are some guidelines you can follow to learn how to get pre-approved for a new home buyer loan.
1. Find a Mortgage Company
At The Davis Real Estate Group, we work with real estate professionals daily and can recommend some great local mortgage lenders to contact for pre-approval on a new home loan. You can also research online lenders for free mortgage pre-approval.
Different lenders may offer different rates or incentives. You do not necessarily have to finalize your mortgage with the same lender you use for pre-approval.
2. Collect Important Documents
While a pre-approval differs from a mortgage approval, you will still need to supply important documentation about your finances, assets, and debts. The exact documents may vary, but you should make sure you have the following documents in advance:
- Most recent pay stubs
- W-2 statements
- Financial account statements
- Federal tax returns
- Student loan statements
- Legal identification
Even if you don’t pursue home loan pre-approval, you will need all of these documents when it comes time to secure a mortgage loan.
3. Credit Check
Your mortgage lender will check your credit score to determine whether you qualify for a new home loan pre-approval. We advise you to check your credit score before home shopping to avoid any surprises. It also allows you to find possible errors before the lender runs your score.
The lender will review your credit report and history and assess your utilization ratio. The lower your credit utilization is, the better chances you have of being approved for a new homeowners loan. Your credit score will also impact the type of loan you qualify for.
If everything checks out, your lender will determine that you are pre-approved for a new home loan and for what amount. You’ll also be issued a pre-approval letter that you can include when it comes time to make an offer on a home.
Keep in mind that pre-approval letters are only authorized for a certain amount of time. This can range anywhere from 30 days to 90 days, so make sure you keep that in mind as you house hunt. You may need to renew your pre-approval, which may affect your credit score.
What Happens After Home Loan Pre-Approval
Once you receive a pre-approval letter for a new homeowner loan, be sure to share that information with your real estate agent. We want to make sure that we find homes for you that meet both your budget needs and approval odds. While technically, you can put an offer on a house without a pre-approval letter, we recommend pre-approval first because it adds confidence that you can secure financing for the amount you offer.
When you find a home you would like to make an offer on, including your pre-approval letter can help you stand out from all the other home buyers competing in this market.
If, for some reason, you cannot get pre-approved for a new home loan, it gives you time to work on whatever the issues are, whether it’s paying off debt, saving for a larger down payment, or resolving inaccuracies on your credit report.
The Davis Real Estate Group Can Help
No matter whether you’re looking to buy your first home or your fifth, our team at The Davis Real Estate Group can help you make your real estate dreams come true. We help homebuyers and sellers through every step of the process.
Are you looking to buy a home in the North Dallas, Texas area? You can view all active listings on our website. If you have any questions or would like to schedule a showing, fill out our contact form or give us a call.