How To Get A Pre-Approval
Everyone knows that the first thing to do before shopping for a house is to get pre-approved by a lender. But how does one go about it, and what does the process entail?
I had the pleasure of speaking again with Sofia Travayiakis of Mortgage Network. This week, we discussed the ins and outs of getting that vital pre-approval letter, including how to find your loan officer, which documents you will need to show them, and some essential DON’Ts in the process.?
Hopefully the tips below will help you during the process of securing your financing and finding the right mortgage for you.
Step 1: Find A Loan Officer
The first thing we like to recommend is to ask your Realtor for a qualified referral. Your Realtor and their broker’s office will likely have a list of professionals they like to recommend whom they’ve worked with before and who have a proven track record. They usually don’t recommend people they find difficult to work with or who are not knowledgeable in their field. This will get you a vetted professional who is likely to do a good job.?
That is assuming you have already identified and committed to a Realtor, which is why it can sometimes be helpful to start there. However, I know a lot of Realtors’ first question to any potential clients is, “Have you spoken to a lender and are you pre-approved?” Don’t be afraid of this question and don’t assume you shouldn’t be speaking to them yet—actually, this is a great way to vet a real estate agent. A good agent will, on their own, ask if you need a lender? reference or if you need them to walk you through the process of finding the lender. If you ask them for a reference and they don’t have any, or if they seem to be unwilling to talk to you until you come back with a pre-approval letter, this may not be a Realtor you will have a good professional experience with, regardless.?
Secondly, you can always reach out to family and friends who have recently gone through the process themselves. This is another way to get a vetted mortgage lender.?
Thirdly, and very commonly, people start looking for a lender online. If you take this approach, keep these things in mind: You want to find a local lender (see previous article to learn why this is so important). Even local lenders now have online applications on their website for the convenience of their clients, which gives an updated and modern experience. Also make sure to read the lender’s online reviews.?
For more specifics on what you should look for in a lender, please see the previous article or listen to the Instagram Live from Nov 1, 2021, where we discuss what you want in a good mortgage lender.?
Step 2: Prepare Your Documents
Prepare and have ready any document that gives a picture of your financial situation. Most lenders will ask for similar documents, so having them ready beforehand will speed up the process considerably.?
“We’re looking for two years of your past and three years into your future,” Sofia says.
This makes it easy, because you know you have to have everything in two’s. Including but potentially not limit to:
So even though some lenders may ask for more specifics than this, if you can at least have these above things lined up, you’ll be in a good place.?
When Sofia says she is looking three years into your future, she is looking for predictability and stability. So the documents she may ask for to predict your financial stability include things like: employment agreements that outline pay structure (for example, if you have bonuses or raises lined up, she would want to know about that), investment properties, and any other proof of funds coming in the future. With investment properties, she may ask for rental income for the past two years as well.?
Are your parents giving you a financial gift to help with the purchase of the home? Show a deposits—or a check with proof of funds in their bank account—to your lender.
Credit Score
You can pull your score yourself from sites like Credit Karma, just for your own knowledge. The lender will also pull your credit themselves.?
And because each lender you shop for (if you are looking at multiple lenders and shopping loan programs) will pull your credit score, you may feel a cause for concern about how this will affect your credit. But Sofia says the key is to do all your lender shopping within 30 days.
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Commit to a lender within the month to ensure that your credit isn’t pulled again after this thirty day period. Within a thirty day window, multiple lenders can pull your credit without an issue.?
4 Major DON’Ts
It is very important not to open any new lines of credit, not only during the pre-quialification process, but during the entire home buying process through to closing. Even once you have been approved for financing, which happens before closing day, we urge you NOT to make these four main mistakes:
Lenders do what is called a Soft Credit Pull at about 5 days before closing, for the purpose of ensuring that your financial picture has not changed since the prequalification was issued. It is not unheard of for financing to fall through even that near to closing because the lender thinks the buyer no longer qualifies for the loan.?
Pre-Qualification vs Pre-Approval
What you want is a pre-approval, which contains a credit check and a thorough verification of your financials. A pre-qualification, on the other hand, is not the same thing.?
The pre-qualification was created to be a quick item you can get—sometimes even just through an online form— just to get the process started. However, you need to follow it up with a pre-approval, which is more thorough.?
I don’t even like to see a pre-qualification letter in an offer.? I will call the lender and make sure there is a solid pre-approval and advise my sellers accordingly on which offer to accept based on the financial strength of the pre-approval. A pre-qualification is not enough because it’s just a placeholder and does not reflect an accurate financial picture.?
There is a risk with using only the pre-qualification because it is not enough for the lender to actually issue the loan.?
Even pre-approvals issued by the wrong source can present problems.?
“Just last week,” Sofia says, “somebody called me saying they had gotten approved just by their checking & savings bank, and they were self employed, and they got a preapproval letter from them, but [the person who had issues the original pre-approval] they really didn’t know how to read their tax returns accurately, and they had an accepted offer but they got denied for the loan. And they came to me and said, can you approve us? And there was really no way they should have been approved for that, so they had to just let the house go.”
In Conclusion
As you can see, the process of getting a pre-approval isn’t complicated or scary once it’s broken down into steps. Shop for the right lender who has the right loan program for you, get all your paperwork ready and in-hand for them to be able to issue the pre-approval speedily and so that you can shop around within 30 days, and, finally, don’t jeopardize your financial status by taking out any lines of credit or switching jobs during the duration of the homebuying process.?
A good Realtor will help you through the process and recommend a vetted list of lenders for you to shop.?
If you have any questions about this topic or about the home buying process in general, reach out to us any time for free consultations. You can reach Evie Sidiropoulos with Berkshire Hathaway Page Realty via email at [email protected] or by phone at (781) 439-4941 or on Instagram @eviebostonrealtor. You can reach Sofia Travayiakis, branch manager of Mortgage Network, via email at [email protected] or by phone at (617) 686-1873 or on Instagram @sofiamortgage.
Both Evie and Sofia service West Roxbury, MA and the surrounding areas in and around Boston.?