When you’re out shopping for a home, it’s essential to prove you’re the best buyer out there. Sellers and real estate agents will want to be assured of your qualifications and assets. So, to prove you’re a qualified buyer, a preapproval can be the secret weapon that edges out other buyers and clinches you that dream home.
We’ll break down why a preapproval is so important and how the steps you take to obtain preapproval will show you’re a responsible, prepared buyer.
Things you need to get preapproved:
- Proof of income: usually W-2 statements and pay stubs from the last two years, along with proof of any additional income
- Bank statements & proof of assets
- Credit report: most lenders require a credit score of 620 or higher (higher ones can help you get a better rate)
- Tax returns: to help verify employment
- Place of residence
- Employment verification
- Self-employment documents (if applicable)
- Driver’s license or state ID
- Social security number
- Gift letter: if you are receiving funds for the house from a friend or family member to prove it is not a loan
Preapproved vs prequalified
You may have heard the term ‘prequalified’ and assumed it was the same thing as preapproved — or vice versa. They’re somewhat similar, but a preapproval carries more weight if you’re serious about buying a home.
Preapproval is more in-depth and shows the lender did their due diligence and found you to be a suitable candidate for a loan. Since a preapproval process requires all the things listed above, you’ll get a more accurate amount of what you can afford and the ringing endorsement of a lender’s weight behind you. A preapproval letter may only last for a set period of time, usually 60 to 90 days.
Prequalification does give you a sense of what you can afford based on a limited amount of information a lender collects from you, but the amount may not be accurate. It might be a good idea to get a mortgage prequalification before you’re seriously considering buying a house. You can get an idea of what you can afford — and how you can improve your financial situation for a preapproval.
Benefits of a preapproval
Your preapproval letter can come with quite a few benefits, such as:
- No surprises. Okay, we can’t guarantee there won’t be any surprises during house hunting, but a preapproval will give you a solid idea of your budget, and you can tailor your search accordingly.
- Snag a good real estate agent. If you walk into a realtor’s office with a preapproval letter in hand, they’ll be much more willing to work with you since they’ll know you’re a serious buyer.
- Show the seller you’re low-risk. If a house gets multiple offers and you’re the only one with a preapproval, there are greater odds that house can be yours. Most sellers will gravitate toward the buyer with the least amount of risk associated. And if you already have a lender in your corner saying you’re good to go for a mortgage, things are looking pretty swell for you!
- Shorter searching time and closing period. In a competitive market, sellers’ agents may not even show houses to buyers who don’t have preapprovals, meaning you can see more houses more quickly. And since the lender has already preapproved you, it can speed up the closing process since they already have your information on file!
Yeah, getting a preapproval can be a fair amount of work. But it can save you time, energy, and — possibly — money in the long run!
