Obtaining a pre-approval letter from a mortgage lender is an important, yet often overlooked, first step in the home buying process.
While we know buyers are eager to get started in their home search, Katy is a competitive market, and you could be at a disadvantage if you're submitting an offer on a home without a pre-approval letter up against a buyer who has one. Sellers consider not only the price offered on their home but also the potential buyer's ability to follow-through with the transaction successfully. In reverse, submitting an offer with a pre-approval letter can give you a competitive advantage vs. offers made without one.
Going through the pre-approval process also lets you ensure you're only looking at homes you can successfully obtain financing to purchase. There's nothing worse than falling in love with the proverbial pair of shoes that don't come in your size.
The pre-approval process will also give you time to procure any additional documentation that may be required to be approved for the final loan. As an example, tax transcripts can take several weeks or sometimes even months to become available for request within the IRS's system once your taxes are filed. Going through the pre-approval process can allow the lender to request them before you're under pressure to have them to finalize the loan.
For the reasons listed above, we require that buyers we work with go through the pre-approval process and obtain a pre-approval letter before beginning their home search.
*It's important to note that getting pre-approved with a lender doesn't commit you to having to use that lender for the final loan, but it does show sellers that you have the ability to get financing for the offer you submit for their home.
Pre-approval vs. pre-qualification
While some people think mortgage pre-approval and mortgage pre-qualification are one in the same, it's important to note and understand the difference between them.
Mortgage pre-qualification is an evaluation of your credit worthiness at a glance. Pre-qualifications are provided with limited and unverified information from the potential borrower. A pre-qualification is not a promise by the lender to give you a loan to purchase a home: it is an indication that you should be able to qualify for a loan based on the limited information you provided.
Mortgage pre-approval is a more detailed process where the lender verifies your information, sends it through underwriting and is an acknowledgment that you indeed qualify for a mortgage, as well as a definitive amount a lender will approve for your purchase. In most cases, as long as the home you choose appraises for the price you're willing to pay, a pre-qualification means the lender has every intention of allowing you to obtain a mortgage.
Banks vs. brokers
Your pre-approval letter can come from the bank (including credit unions) or mortgage broker of your choice.
Banks can often offer better interest rates but can also have more stringent qualifications for approval or lower loan approval amounts.
If you're looking for a mortgage broker who gets things done, we recommend:
Start the pre-approval process with Reef here
We've worked with Reef on multiple loans, and he's on top of his game and does his best to ensure there are no last-minute surprises.
Documents to gather to obtain pre-approval
Below is a list of documents you should gather that you will be asked for during the mortgage pre-approval process:
- Your most recent two years worth of W2s
- Your two most recent filed tax returns
- A copy of your driver’s license
- A copy of Social Security card
- Your two most recent pay stubs
- The last 2 months worth of most recent bank statements (all pages) for all of your bank accounts, including retirement accounts, etc.
The above is the minimum documentation you will need to get a pre-approval letter from any bank or mortgage broker.
If there is a co-applicant, you'll need all of the above information for your co-applicant as well.
Different banks and brokers may require additional documentation. Additionally, special circumstances such as self-employment or other real estate holdings, etc. may also need more documentation.