How To Get A Mortgage Preapproval
Posted by Jason Kauffman on September 7, 2022
Having a mortgage preapproval is the gold standard that real estate agents are looking for when they are presenting your offer to their seller. A preapproval tells the seller that your credit report, income, asset, and any additional supporting documentation needed for loan approval have been received and reviewed. It also means that your loan file has been run through the automated underwriting system and sometimes even crossed the desk of an underwriter.
Perhaps most importantly, a preapproval is going to make your offer stand out next to other buyers who haven’t taken that step.
The first step of any mortgage preapproval is getting your information to the mortgage professional you’re working with. You can do this over the phone, through a secured online prequalification system, or face to face. Once the information is received, the mortgage professional can build a file in their system and begin going through loan options with you.
Some important questions to consider with your mortgage professional when you are getting started:
- What is the max monthly payment you would be comfortable with?
- What is the max you would be able to bring as a down payment?
- Do you have an idea about where you want to buy? What type of home are you interested in (Single Family Home, Townhouse, Condo, Rural, etc)?
Getting these questions answered will give your mortgage professional the answers they need to build loan options that meet your needs.
After identifying a price range that works for you, the next step is to begin gathering supporting documentation needed for the loan process. This will allow the mortgage professional to review your income, asset, and other pertinent supporting documentation. Not only will providing this documentation in advance save you time later in the purchase cycle, it will allow the mortgage professional to identify any potential issues well in advance of you being under contract on a home.
Below is a fairly standard list of supporting documentation needed for the loan process, although less or more may be needed depending on the particulars of your unique situation (i.e. self-employed, retired, recently graduated, a veteran, etc).
- Most Recent Year’s W2 forms
- Most recent YTD paystub(s) covering 1 month’s pay
- 2 months of statements for Checking, Savings, Investment and Retirement Accounts
- Driver’s License Copy
Working with an experienced mortgage professional will help build a very thorough needs list up front to save you time later in the process and identify potential qualification problems early on.
After your documents are received your mortgage professional will update all of the data in your loan file to match the data from your supporting documentation. Sometimes after reviewing your documentation, additional verifications may be needed to determine commission, bonus, overtime, tip income, etc. They may even want to put your loan in front of an underwriter to know exactly how much income they will be allowed to use to qualify you for your new purchase. All of these additional steps are to ensure that there are no surprises later in the loan process.
At this point in the process, your mortgage professional should be able to determine what the upper end (Maximum Purchase Price) of your preapproval is. If there are any issues and you have to lower your maximum purchase price due to the documentation provided, this is where you will discover that. Don’t forget to work with your mortgage expert to come up with solutions. Often a little outside the box thinking will yield a way forward.
The initial preapproval letter will be issued as a generic letter with no property address. As you start making offers, remember to reach out to your mortgage professional and have them tailor the letter to the address and price for the property you are making an offer on. This presents better to listing agents and sellers, and will give you the best chance at getting your offer accepted.
The job of a good mortgage expert doesn’t end after you are preapproved.
Many times, your mortgage professional can determine whether or not an appraisal will be needed once you provide them with an address (Appraisal Waivers), and that can affect the way you and your real estate agent decide present your offer to the seller. Your mortgage expert can also rework your mortgage estimates once you have a property identified which will allow you to revisit current interest rates and get a very accurate idea of what your payment on your new home will likely look like. Your mortgage professional is here to help you with all of these things.
Some people see the preapproval process as daunting, or maybe they don’t think they will qualify. The exercise of going through the preapproval process will even help people that don’t qualify for the price range they want right now. Your mortgage professional can work with you to figure out what you need to be doing to become ready to buy. This can include discussing hypothetical income requirements, working through credit report modeling to see what can be done to improve your credit, and they can even help you brainstorm solutions with potential co-signers.
The preapproval process is something that every person serious about exploring potential homeownership should go through. Ultimately, the benefits to be gained from your effort to get preapproved will result in a higher chance of you having that winning offer on the home of your dreams.