Overview

Before finalizing your home criteria and budget and especially before shopping for homes, it is critical to get pre-approved for the following reasons:

• Pre-approval tells you how much home you can afford
• A seller will not take you seriously without one
• Most agents will not show you homes without one
• The final loan approval as part of your home purchase will go much smoother and faster

What Credit Score Do I need?

The minimum required credit score is a 580 FICO, however, most lenders require a minimum of 620.  If you’re looking at a jumbo loan (loan amounts over conforming loan limits), you will need a minimum of 700 per most lenders.  The higher your credit score the better as it will mean more affordability as you will qualify for a lower interest rate.

What do you need to get pre-approved

To obtain a mortgage pre-approval, you must complete an application and submit all required documents, including but not limited to the following:

• Pay stubs and W-2s (typically two years)
• Tax returns (most recent or two years depending if self-employed or earn most of your income through commissions or bonuses)
• Bank, retirement and investment account statements (usually two months)
• Letters of explanation for issues with credit report
• Financial statements of business if self-employed
• Divorce paperwork (if applicable) – decree if paying alimony and/or child support

In addition to the above and any additional documentation required by the lender, your credit will be ran by the lender to evaluate your overall financial history and FICO score.

What’s in a pre-approval letter

A pre-approval letter from a lender provides assurance to you, sellers and real estate agents that you have the ability to a complete the purchase of a home that meets the lender’s guidelines.

Mortgage pre-approval shows you what you can afford to spend and what your monthly payment will look like.  The letter is usually good for 60-90 days.

Mortgage pre-approval is not pre-qualification. Many lenders provide a pre-qualification letters after asking you about your income, debts and assets, and maybe checking your credit.  The pre-approval takes it a step further by doing a more thorough analysis of your overall financial situation.

A pre-approval is not final loan approval

Just because you received a pre-approval, does not mean you will get final loan approval, but it is a major step in the right direction.  May things can go sideways between pre-approval and final approval whether it’s a mistake you made as a buyer that hurt your credit, the home does not meet lender’s standards, or additional info becomes known to the lender during final underwriting that disqualifies you.

Continue to Shop for the Best Mortgage

Just because you received a pre-approval letter does not mean you have to use that lender.  Continue to shop other lenders (recommend a total of at least three) to obtain the best possible rates, including on hidden closing costs.