Don’t Just Get Pre-qualified.  Get Pre-approved!  

A prequalification is generally a quick assessment of how much a homebuyer can afford, based on information that the buyer has given to the loan officer.  After taking into account gross income, expenses, and down-payment, a lender will give an estimate of how much the buyer will qualify for, and will then write a prequalification letter.  However, at this point, the buyer has not filled out a loan application, and the loan officer has not verified the information.   The prequalification letter lets the seller know that the buyer could afford to purchase the home if their application is successful.  Listing agents and sellers no longer put much confidence in prequalification letters.   Time and time again, homebuyers bid on a property, but are unable to secure financing.   Homebuyers today need to get preapproved.

Homebuyers need to fill out a loan application and provide the lender with: 

  • Credit reports
  • Two years of W-2s
  • Two months of current paystubs
  • 2-years of employment history
  • Bank names, account numbers, and balances
  • 3-months worth of most recent bank statements – all accounts
  • Account numbers, balances, and monthly payments of all open loans
  • Rental history 

This information will be need to be verified, and the banking and credit history will be reviewed.   The loan application is submitted to an underwriter who makes the final decision regarding a loan.   If the underwriter issues a pre-approval, the buyer will have proof that they are a qualified borrower worth consideration.

The pre-approval is not a final commitment for a loan, but it is necessary to have when submitting an offer, and even sometimes a requirement when wanting to look at homes with a buyer's agent.  It shows that the buyer has the finances, and ability, to complete a home purchase.  Otherwise, everyone's time may be wasted - the buyer's, the seller's, and the agent's.  Sellers do not want to accept an offer, and go into escrow, with the chance that the completion of the purchase will fail because the buyer cannot obtain financing.

Also, once an offer to purchase a home is accepted, the buyer normally has 17 days to get loan approval. Thereafter, if the buyer fails to complete the purchase, the buyer's deposit can be held by the seller as liquidated damages.  It is so much less stressful to have the loan approval process already started than to have to keep scrambling for more documentation that the underwriter will need. 

I can recommend several great lenders.

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