Home-Buying Prep: Pre-Approval

Right now, it’s summertime. Read this guide, enjoy your time outside, and then come back to this article or share it with a family member. Whether you’re shopping houses today or 3 years away from finding a Realtor, set yourself up for success with financial strategies that aren’t often laid out plainly. 

This is the first issue of several articles in my “Home-Buying Prep” series. Today, we talk about loan pre-approval. 

1. Why should you get pre-approved for a loan?

Unless you make a cash offer, you’ll finance your home with a mortgage. You can start by getting pre-approved for a mortgage and then visit your dream home with confidence. Your pre-approval will have a lending limit, which gives you a realistic budget. You can lock in your interest rate and speed up the final approval process, which will streamline your home-buying process. On top of that, this tells the seller that you’re qualified and serious about buying their property.

Visit an Open House with confidence about your mortgage plan.

2. How do you qualify?

Show the lender that you’re responsible. Aim for a credit score over 750 when you ask for loan pre-approval. You can continue to grow your credit score by paying off existing debt and making regular payments on time (credit cards, rent, utilities, car payments.) Beyond credit, you’ll show your qualification with cash flow.

Keep saving for a down payment, and show your savings to the lender. Steady employment is crucial, too. Lenders prefer borrowers with a stable employment history, typically at least two years in the same field. When a lender sees that you’re prepared for a downpayment and will continue earning income, you’ll look good to them! With this in mind, here’s a checklist of information to bring to a potential lender:

Proof of Income: Pay stubs, tax returns, and W-2 forms
Proof of Assets: Bank statements and information on other assets
Credit Information: You’ll authorize a credit check
Employment Verification: Details about your current and past employment
Personal Identification: Social Security number and Driver’s License

You can choose from lenders like banks, government programs, and mortgage-specific groups.

3. Who can pre-approve you?

Commercial Banks: Banks like Wells Fargo and Chase are your standard lenders. They each have an established reputation. With that stability, they may have stricter lending criteria and higher fees.
Credit Unions are member-owned and often have lower fees than other lenders. Before joining a credit union, make sure you know what you’re signing up for.
Mortgage Brokers: Talking to five different lenders may be complicated or confusing. Brokers can shop around different lending options for you. 
Government-backed Lenders: FHA, VA, and USDA loans offer favorable terms for qualifying buyers. These have specific eligibility criteria but offer you the benefit of a lower down payment and credit requirements.

4. What lender should you pick?

This is more about personal fit than following a formula. If you’re talking to a real estate agent, they likely have a good working relationship with several lenders. Ask the homeowners in your life about their loan experience and find an option that suits you. At the end of the day, your lender is one of your teammates. If you think you’ll make an offer on a weekend, pick a lender who responds to weekend calls. Look for someone with interest rates you like, a strong local reputation, and (just as important) someone you trust to be on your team. 

That’s it for this month! Thank you for taking the time with my new project. Please let me know what you think of this new article style, and when you want to take the next step toward buying a home, let's talk.