What's in this article?
There are many things to do and consider before buying a home. Mortgage preapproval is a crucial part of the home buying process.
But in a competitive market, when every buyer has a preapproval letter to present, what can you do to get ahead?
We’ll show you why you really need to get preapproved and how Homefinity’s Cash Assurance program can help you edge out the buying competition.
Why does a homebuyer need mortgage preapproval?
A homeowner’s biggest worries when it comes time to sell is the frustration and delays associated with deals that collapse. They want to know that the best offer on the table is going to be able to follow through.
Like the prequalification process, mortgage preapproval will also give you a snapshot of your home buying abilities and price range.
But mortgage preapproval goes a significant step further. Preapproval is the closest you can get to proving your creditworthiness before the deal has actually closed.
Lenders who offer preapproval verify your credit report and your personal finances to a much greater degree than the prequalification process.
Real estate agents know that the preapproval process has greater due diligence, potentially giving them more confidence in your offer versus your competitors.
Many buyers confuse preapproval and prequalification.
Just because you’ve prequalified for a mortgage, doesn’t mean that you’ll automatically be preapproved. Prequalification also doesn’t mean as much to a seller as a letter of preapproval does.
Still, prequalification is a great early step to buying a home. When you get prequalified, you get an estimate of the amount you could potentially qualify for from a lender. A good mortgage calculator can help figure out your mortgage payments as well.
The prequalification details will depend on the financial information you provide, so ensure it is as accurate as possible. Often, prequalification can be done online or over the phone whereas preapproval is a much more formal process.
Prequalification is also an excellent place to begin your home search so that you have a price range for homes to search for.
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How do I get preapproved?
Before you can be preapproved for any of our home loans, you need to work with a loan officer to verify your financial information.
At the end of the whole preapproval process, you get a more specific estimate of the loan amount you could qualify for that can be used as part of your purchase offer.
Let’s look at each of the crucial steps and details of the mortgage preapproval process.
Gather your documentation
The preapproval process is nearly the same as an actual mortgage application.
The lender will comprehensively examine your financial situation, complete with a full credit check. To speed up the process, be ready with the following information:
- Proof of income, which could be W-2 statements, tax returns, bank statements, or pay stubs
- Proof of employment
- A detailed list of your assets (like cars you might own)
- Proof of your credit history like your credit report
In addition, lenders will calculate your debt-to-income ratio (DTI) during the preapproval process to see what you can afford.
When should I apply for mortgage preapproval?
The best time to get mortgage preapproval is at the very beginning of your home buying process.
Knowing how much of a loan you could get will help simplify the house hunting process. You don’t want to waste time looking at homes that you won’t ultimately be able to afford.
You’ll also want to have your preapproval letter by the time you want to make an offer, so the seller will seriously consider it.
Once you have the funds available for your downpayment and closing costs, a final approval process will take place. Since you’ve already been preapproved, the official approval process should go smoothly.
How long is a mortgage preapproval valid?
Unfortunately, a preapproval letter won’t last forever, each has a specific expiration date.
Though it will vary from lender to lender, a typical mortgage preapproval letter is suitable for 60 to 90 days.
However, if the housing market isn’t cooperating with your wishes and you can’t find the right house, you can request your lender renew the letter.
You’ll have to resubmit your most recent financial information to ensure the amount of your preapproval hasn’t changed.
How long does it take for a lender to give mortgage preapproval?
Once you’ve submitted all your documentation and financial information, the typical processing time is three business days to receive your mortgage preapproval letter.
However, that will also vary by lender as well as depend on how long it takes you to gather and submit documentation.
Do mortgage preapprovals hurt credit scores?
Applying for mortgage preapproval requires a hard inquiry into your credit history.
While it’s true that this can cause your credit score to drop, preapproval should not hurt your credit score significantly.
If there are any subsequent inquiries from other mortgage lenders within (typically) six weeks, they shouldn’t affect your credit score.
Anyone can check their own credit reports through the official credit bureaus, once a year.
Mortgage Preapproval Letter
Once your mortgage preapproval application is complete and accepted, you receive a mortgage preapproval letter.
From there, real estate agents will likely want to see the letter before they show you any properties to ensure the purchase prices you’re looking at fit into your budget.
Secondly, a mortgage preapproval letter is an important document to include with any offer you make to a seller.
While it is not an actual approval for a loan application, it’s practically the next best thing. The only exception to this might be the Homefinity Cash Assurance.
Preapproval goes further with a Homefinity Cash Assurance
The mortgage preapproval letter is now a well-known tip among home buyers, so other prospective buyers will likely have been preapproved. That means more even competition for the home you want.
So how can you make that offer of yours stand out from all the others?
Homefinity’s Edge preapproval, along with Homefinity’s Cash Assurance Program, gives you the advantage of bringing a cash offer to the table.
Homefinity Cash Assurance advantages
- The seller will see you have a cash guarantee from your lender.
- Cash offers are almost always more highly regarded than mortgages since fewer financial hurdles exist.
- You, the borrower, won’t pay any additional fees to use the program.
- Homefinity’s Cash Assurance Guarantee is to purchase the home themselves if the deal cannot close for financing reasons by the closing date. This can be a great enticement to the seller.
- However, should the seller not want to take advantage of the guarantee, they can choose to walk away from the deal with $10,000 cash—paid by Homefinity—and terminate the contract.
Homefinity preapproval and Cash Assurance will get your offer accepted
Homefinity can help with many of your mortgage or refinance ambitions.
Whether you’re a first-time homebuyer, a return buyer, or you’re looking to reduce your monthly payments, we have the experience and passion for to get the job done right.
Reach out to one of our loan officers to talk to us about our Homefinity Edge Pre-approval* process, and see if our Cash Assurance program is right for you.
*Homefinity Edge Pre-Approval is based on a full review of the borrower’s creditworthiness and is contingent upon there being no material changes in the borrower’s financial condition or creditworthiness at the time of final loan approval. Final loan approval is subject to the following conditions: (1) borrower has identified a suitable property, and a valid appraisal supports the proposed loan amount; (2) a valid title insurance binder has been issued; and (3) borrower selects a mortgage program and locks in an interest rate that will support the pre-approved monthly payment amount. Loan must close before the expiration date provided in the pre-approval. Offer not available on FHA, USDA, bond, or DPA programs. Sale of home proceeds contingency not allowed. Gifts not deposited are not allowed. Please note that submitting verifying documentation is not a requirement to receive an estimate of closing costs associated with a mortgage loan.
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