Unless you are purchasing your new home with cash, getting preapproved for a mortgage is an absolute must in today’s real estate market. Preapproval greatly increases your chances of obtaining a mortgage. Without a preapproval, Dawn will not write an offer on your behalf, nor will Listing Agents accept your offer.
What is the difference between loan qualification and loan preapproval? Loan prequalification does not mean you will get a mortgage. This is a very basic step in which the lender simply discusses your income, assets, and credit to let you know whether you are eligible for financing. There is nothing wrong with getting prequalified, but if you are serious about buying a home, take the next step and get preapproved.
Being preapproved means that, not only have you filled out a loan application, but your lender has run your credit in addition to verifying your assets and income. Some of the documentation you will need to provide for the preapproval process includes:
- A completed loan application
- Two most recent months (or quarterly statement) of all assets listed on the loan application such as checking, savings, IRAs, 401Ks, mutual fund accounts, individual stock accounts, and the like
- Most recent paystubs
- Two most recent years of W2s
- Two most recent years of Federal tax returns
- Two most recent years of corporate tax returns (if you are self-employed and own over 15% of the company)
Once the lender has all of the documentation, your loan will be submitted for preliminary underwriting. Since 2008 and the housing crisis, the process for obtaining a mortgage has become significantly more strict. As such, the lender may ask for additional documentation above and beyond what you are initially required to submit. Once you are preapproved, your lender will provide a preapproval letter outlining the loan amount you are qualified to receive. Be sure to send a copy of this letter to The Dawn Thomas Team.
Your loan preapproval status is typically valid for 120 days, so you should begin your home search as soon as possible after receiving your letter. Should your home search extend beyond this period, you will need to contact your lender to get an updated preapproval letter.
We encourage you to ask your lender about the specifics of the loan for which you are preapproved, including the estimated monthly mortgage payment, Private Mortgage Insurance (PMI), if applicable, taxes, and insurance. Your lender should also provide a Loan Estimate, which details the fees and closing costs you will incur. The fees and closing costs are in addition to the down payment. You can expect these extra fees to be approximately 2.5% of the purchase price of the property. Click here for an example of typical closing costs in California.
We can’t stress enough how important it is to choose the right mortgage lender. You need someone who will work with you to get you the best possible loan at the lowest rate. You want a lender who is organized, diligent, and does everything in their power to ensure your loan is processed and funded in a timely manner.
Just as with everything, it pays to shop around. Every lender offers different mortgage products with different rates and associated fees. We suggest meeting with at least two different mortgage brokers to see what loans they have to offer and which best fits your individual financial needs. To avoid any dings on your credit, we suggest waiting 2 to 3 weeks between each meeting. Each lender may pull your credit report and if these credit report requests occur too close together, it could drop your score slightly. By waiting a few weeks, the multiple credit report requests shouldn’t cause any issues.
If you need recommendations on mortgage lenders, please reach out to Dawn and The Team. We have great connections in the industry and are more than happy to connect you with some credible, trustworthy lenders.
Now that you’ve got your team behind you and a preapproval letter in hand, it is time to start making headway on your home buyer’s checklist.