In recent years getting pre-approved before you make an offer on a house or condo has become increasingly important. Pre-approval gives the seller confidence that you can afford the house/condo.
To understand the process and the importance we spoke to Craig from Absolute Mortgage. He shared with us some tips, timelines and guidelines to make getting a pre-approval less daunting.
When you decide you are ready to start looking for a home it is recommended that you start with a pre-approval. This can be obtained from a mortgage company, like Absolute Mortgage, or a bank. Most pre-approvals are valid for 3-4 months. The good news is there should be no cost associated with getting pre-approved.
You will need to start collecting the necessary documentation for the loan process: bank statements, your last 2 pay stubs, W2’s, past 2 years federal tax returns, and a list of all of your assets in order to apply for pre-approval. Ideally you will have been with your current employer for 2 years. However, if you have not been employed with your current employer for 2 years or you are self-employed it doesn’t mean you can’t buy a home, it just means there may be extra paperwork involved in order to try for pre-approval. Once all the documents are received by the company or bank doing your pre-approval then you are usually able to get pre-approved in 24 hours or less.
Generally speaking for the best mortgage rates companies like to see a credit score of at least 700. Scores over 760 points receive the best rates available. Ideally you should have a 45% max debt to income ratio sometimes up to 50% with FHA, in order to qualify for a home purchase.
It is important to remember once you have pre-approval there is no obligation to buy. If you change your mind or it takes longer to find your dream home you are not committed to purchase anything. You would simply apply for pre-approval once again when you are ready.
When you are ready to start the process picking where to get your pre-approval is up to you. Craig recommends finding a company who offers the service, options, communication and experience you are looking for. Interview them, ask questions and find the people who you are most comfortable with.
Getting pre-approval can often give you an advantage over other buyers. A pre-approval tells the seller that you are financially able to purchase the house, instilling confidence that the sale will go through. While it doesn’t guarantee that your offer will be accepted it does show that you are serious and capable of closing on the house or condo.
Pre-approval is good for your peace of mind as well. You know with certainty that under your current circumstances you should be able to afford the mortgage payments on a house/condo within the price range you are pre-approved for. This allows you to be a focused buyer, and to help you be a successful homeowner.