2 minute read.
Purchasing a new home is more than just house-hunting and eventually signing papers; it also involves working closely with your bank to arrange a mortgage so that you can successfully take ownership. Receiving a pre-approval from your bank is the first and most important step you take when deciding to buy a new home, regardless of whether you already own a home or not. This is the time when your bank will look closely at your finances and determine how much money they will lend you. A pre-approval letter will also provide you with a guaranteed interest rate and an estimate of your future monthly mortgage payments.
Here are three things you should know as you work through the mortgage pre-approval process.
1. You Need to Provide Several Documents
To receive pre-approval for a mortgage, you will need to supply several documents. This paperwork gives the bank the information they need to provide you with the most accurate estimate regarding a home loan. A few of the documents you can expect to provide include:
- Proof of identification
- Current income information (such as pay stubs)
- All asset information such as bank statements and investments
- All current debt (including consumer debt)
- Current housing expenses such as monthly rent or mortgage payments
Keep in mind that the information each bank requests will vary.
2. A Pre-approval Does Not Guarantee Financing
Just because you are pre-approved to receive a mortgage does not mean that you will receive that dollar amount. The pre-approval process simply gives you an estimate and is a great starting place. If your credit score, employment or income suddenly changes, it can affect your financing and you may no longer qualify for the dollar amount or interest rate specified in your pre-approval letter.
3. The Pre-approval Process is Fast
If you can provide the basic documents the bank needs, you can receive pre-approval the same day.
Once you receive pre-approval, you do not want to sit around and wait. The amount you qualify for, interest rate, etc. can all expire which means you may need to start the process over again. A pre-approval letter is only valid for 60 to 90 days but extensions could be offered.
After your offer on a property is accepted, you will work closely with your bank until the financing is approved and processed. It can take several days or weeks depending on the documents and the type of information the bank is requesting.
Before you seriously start house hunting, meet with your Realtor and visit with your bank to receive a pre-approval. This information will not only help you determine how much of a house you can afford but sellers will also take your offer more seriously.
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