What Is Mortgage Pre-approval?

 

What Is Mortgage Pre-Approval?

A mortgage preapproval is an indicator that you are qualified for a home loan for a specific amount. This is very important for first-time home buyers if you do not have the full amount of cash needed to buy the house you want.

Since most of us rely on our jobs to get the house we want to live in, we seek this option to pay for the house in monthly payments for years, but before we could do that, mortgage lenders need to make sure you are able to pay for a specified amount of time.

 

Pre-Approval vs. Pre-Qualification

 

Pre-Qualification is a rough estimate. You tell a lender about your income and debts, but they don’t check any documents. It’s quick and easy but not very strong when making offers.
 

Pre-Approval is more official. You provide documents, and the lender checks your credit. Sellers take pre-approval seriously because it shows you’re likely to get a loan.
 

Why Pre-Approval Matters

 

1. Know Your Budget

Pre-approval helps you understand what price range you can afford. This means you won’t waste time looking at homes outside your budget.

2. Strengthens Your Offer

In a competitive housing market, sellers want buyers who are ready to go. A pre-approval letter tells them you’ve already been checked by a lender.

3. Speeds Up the Process

Since your financial information has already been reviewed, the loan process can move faster once you find a home.

4. Helps You Spot Problems

If there’s an issue with your credit or income, pre-approval will uncover it. That gives you time to fix things before making offers.

 

Documents Needed for Pre-Approval

Getting pre-approved requires some paperwork. Here’s what you’ll likely need:

• A valid photo ID (like a driver’s license or passport)
   
• Recent pay stubs (usually the last 2-3 months)
   
• Tax returns (for the past 2 years)
   
• W-2 or 1099 forms (to show your yearly income)
   
• Bank statements (for the past 2–3 months)
   
• Proof of employment or a letter from your employer
   
• Social Security Number (so they can check your credit)
   

 

Debt-to-Income Ratio (DTI)

Lenders use something called your Debt-to-Income Ratio (DTI) to see if you can afford a mortgage. It compares how much money you owe each month to how much money you earn.

How to Calculate Your DTI:

1. Add up your monthly debt payments (credit cards, car loans, student loans, etc.).
    
2. Divide that number by your gross monthly income (your income before taxes).
    

Example: If you pay $1,000 in debts and earn $4,000 a month: $1,000 ÷ $4,000 = 0.25, or 25%

Most lenders prefer your DTI to be below 43%. The lower, the better.

 

Employment History and Stability

Your job history matters when applying for a mortgage. Lenders want to see:

• A steady job for the past two years
   
• Income that’s reliable and likely to continue
   
• That you’ve stayed in the same line of work
   

If you recently switched jobs but stayed in the same field, you’re probably fine, especially when you have increases in your income. If you started a new career or became self-employed, the lender may want more documents to feel confident about your income.

How to Choose the Right Mortgage Lender

Not all lenders are the same, and finding the right one can make a big difference. Here’s what to look for:

• Low interest rates and fees
   
• Helpful, friendly support that answers your questions
   
• Experience working with first-time buyers
   
• Easy-to-use online tools or mobile apps
   
• Clear explanations of loan terms
   

Want help finding a lender you can trust? Visit SellBoji.com for real estate resources and tools to guide your journey.

Working With a Mortgage Broker

A mortgage broker is a licensed professional who helps you find the best loan by comparing different lenders. Think of them as a middle person between you and the banks. Instead of going to one lender, a broker looks at multiple lenders to find you the best deal.

Benefits of Using a Mortgage Broker:

• Saves Time: They do the shopping for you and handle a lot of paperwork.
   
• More Options: They can offer loan choices from many banks or credit unions.
   
• Expert Help: They know which lenders are more flexible with credit, down payments, or job history.
   
• Personal Support: A good broker will walk you through every step, answer your questions, and help with problems.
   

How They Get Paid:

Most brokers are paid by the lender after the loan closes. Others may charge a small fee upfront or include it in the loan amount. Always ask how your broker is paid before you agree to work with one.

Should You Use a Broker or Go Directly to a Lender?

It depends. If you like comparing and negotiating yourself, you might go directly to lenders. If you’d rather have someone guide you and do the work, a broker could be a great choice.

Pro Tip: Whether you choose a broker or a lender, make sure they explain everything clearly and don’t rush you into a decision.

 

What Happens After You’re Pre-Approved?

Once you’re pre-approved, you’ll receive a letter stating how much you can borrow. This letter is usually good for 60 to 90 days. During this time, you can shop for a home confidently.

Once you find the right home and your offer is accepted, your lender will:

• Order a home appraisal
   
• Finalize your loan documents
   
• Perform a final credit check
   

If everything goes well, you’ll be ready to close on your home!

 

Starting Your House Hunt: What to Know

After you’re pre-approved and have a great real estate agent, it’s time to start looking at homes! This part is fun, but it also takes patience and planning.

1. Make a List of What You Need and Want

Before you visit homes, write down what matters most to you. Ask yourself:

• How many bedrooms and bathrooms do I need?
   
• Do I want a yard or garage?
   
• How long do I want my commute to be?
   
• Is it important to be near schools, parks, or shopping?
   

Knowing your must-haves helps you and your agent focus on homes that really fit your lifestyle.

2. Stick to Your Budget

Even if you’re approved for a higher amount, try to stay within your comfortable budget. Remember, you’ll have other costs like maintenance, utilities, and property taxes.

3. Be Ready to Act Quickly

Good homes can sell fast, especially in busy markets. If you find a home that fits your needs and budget, talk with your agent right away. They’ll help you decide on an offer and handle the paperwork.

4. Don’t Skip the Home Inspection

Once your offer is accepted, schedule a home inspection. This helps you find any problems with the house before finalizing the purchase. It’s a smart way to protect yourself and your investment.

 

How to Choose the Right Listing or Buyer’s Agent

A great real estate agent makes the home-buying process smoother. They help you find the right neighborhood, set up showings, make offers, and handle all the steps until you get the keys.

Tips for Finding a Good Agent:

• Ask for Recommendations: Friends, family, or your lender might know a great local agent.
   
• Look at Reviews: Search online for agents with strong reviews and experience with first-time buyers.
   
• Interview a Few: Talk to 2 or 3 agents before choosing one. Ask how they help first-time buyers and what their process is like.
   
• Choose Someone You Trust: You’ll be working closely with them, so you want someone who listens, communicates well, and knows the area.
   

Bonus Tip: Some agents specialize in working with first-time buyers. They can explain every step and help you feel more confident.

 

What Can Delay or Hurt Your Pre-Approval?

Even after you’re pre-approved, certain actions can affect your final loan:

• Opening new credit cards or taking out other loans
   
• Missing payments or increasing your debt
   
• Changing jobs suddenly
   
• Depositing large sums of cash without explanation
   

Avoid big financial changes until your home loan is final.

 

FAQs

Q1: How long does mortgage pre-approval last?
Pre-approval usually lasts 60 to 90 days, but some lenders may offer extensions.

Q2: Does pre-approval guarantee I’ll get the loan?
Not 100%. Final approval also depends on the home appraisal and any updates to your finances.

Q3: Can I get pre-approved with more than one lender?
Yes! It’s smart to shop around. Just do it within a short time (like 14 days) to avoid hurting your credit score.

Q4: Can I use online lenders?
Absolutely. Many online lenders are fast and easy to work with—just be sure to check reviews and compare rates.

Q5: What if I don’t get pre-approved?
Ask your lender why. It might be your credit score, debt levels, or income. Once you know, you can work on improving those areas and try again later.