One Homebuying Step You Don’t Want To Skip: Pre-Approval

One Homebuying Step You Don’t Want To Skip: Pre-Approval

An essential step in the homebuying process is pre-approval. Here’s what it is and why it’s crucial right now.

What Is Pre-Approval?

Pre-approval is a lender’s green light, showing how much you can borrow for a home. Lenders review your financial history, and according to Realtor.com, they may request documents like:

• W-2s from the last two years
• Tax returns from the last two years
• Pay stubs from the last 30 days
• Bank statements from the last 60 days
• Investment account statements (if applicable)
• Two years of history of where you’ve lived

The result is a pre-approval letter stating how much you can borrow. Remember, changes in your finances can impact your pre-approval, so avoid switching jobs, applying for new credit, or withdrawing large sums from savings after receiving it.

How It Helps You Determine Your Borrowing Power

This year, home prices are expected to rise in most areas, and mortgage rates remain volatile. With affordability tight, consult a lender about your loan options and how rates may affect your monthly payment. Pre-approval is ideal for this, as it sets your borrowing limit and helps you plan your budget, ensuring your home search aligns with a comfortable mortgage payment.

How It Helps You Stand Out

When you find a home to make an offer on, pre-approval strengthens your offer by showing sellers you’ve completed a credit and financial review. This signals you’re a serious buyer, making your offer more appealing and likely to succeed. As Greg McBride, Chief Financial Analyst at Bankrate, explains:

“Preapproval carries more weight because it means lenders have actually done more than a cursory review of your credit and your finances, but have instead reviewed your pay stubs, tax returns and bank statements. A preapproval means you’ve cleared the hurdles necessary to be approved for a mortgage up to a certain dollar amount.”

Bottom Line

If you're buying a home, start with mortgage pre-approval. It helps you understand your borrowing power and positions you to make a strong offer. Connect with a trusted lender to learn more.