Much of the stress of the home buying process is during the Pre-Approval process. That’s the little trial by fire for the rest of the adventure. For most people, this is a quick, easy and no hassle process.
Pre-Qualify vs Pre-Approval
Once you’re fully approved by your Lender, you have the piece of mind of knowing exactly what you qualify for and you can make an educated decision about what homes to be aggressive on, and which ones, not so much.
Anything less than a Lender asking for documentation to support Credit, Employment/Residence History, Assets would be considered a Pre-Qualification. A Pre-Qualification is a “Guess” by an educated Loan Officer based on what you’ve told them. A Pre-Qualification is not sufficient for making offers on most Home for Sale.
A Mortgage Pre-Approval is a complete analysis of your supporting documentation, completing the Loan Application and allowing the Lender to move forward and process your Pre-Approval.
There are 3 things most lenders are looking for:
Credit Scores – The minimum credit score for most programs is 640. Some lenders will have different restrictions. Other programs may require higher FICO scores. Higher credit scores will reduce closing costs if using conventional mortgage. All that is required to run your credit is your address, full name, social security number and most importantly, your permission.
Residence/ Employment/ Income History – Most programs will require the documentation of 2 years of Residence (payment documentation is only required for 12 recent months). You can simply state your last two year’s residence. Employment history is documented during application stage, and backed up with W2’s from employer to support employment and income.
Asset Documentation – Most lenders will ask for 60 days of asset documentation. An asset is any liquid account you have access and at least partial ownership of. There are very specific rules about “Gift Funds”. If you will be receiving a large sum of money from a blood or marriage relative, please disclose to your loan officer so they can instruct you the best time and method (least paper work) for receiving that Gift Money.
What You Qualify For vs What You Want to Spend
You may have a number in mind for buying a home that is different from what the lender comes back with. You may qualify for much more than you want to spend, you may qualify for less.
It’s ok to not buy as much home as you qualify for. Your Lender will help you to target the highest purchase price for the home price range you might be interested in. Choose a payment range that’s most confortable for you.
Making offers with a direct lender approval is a requirement of most sellers. Until you have a full Pre-Approval, be sure to adjust your expectations that this might be a more rushed or lengthy process until you’ve received that Approval Letter.