Pre-approval is a key step in the homebuying journey that many buyers overlook. If you’re not familiar with it, don’t worry! Let’s break down what it is and why it’s such an important part of the process—especially right now.
What Is Pre-Approval?
Pre-approval is like getting the green light from a lender to know how much home you can afford. It’s based on a review of your financial history, and it helps you get an idea of your budget before house hunting. According to Realtor.com, here’s what the lender might ask for:
- W-2s from the past two years
- Tax returns for the last two years
- Pay stubs from the last 30 days
- Bank statements for the last 60 days
- Investment account statements (if applicable)
- Two years of address history
Once the lender has all your documents, they’ll issue a pre-approval letter, which outlines the amount you’re eligible to borrow. Just remember—any changes in your financial situation can affect your pre-approval. So, after you get your letter, try to avoid changing jobs, taking out new loans, or making large withdrawals from your savings.
How It Helps You Understand Your Borrowing Power
With home prices expected to keep climbing and mortgage rates still fluctuating, figuring out what you can afford is more important than ever. Talking to a lender can give you clarity on how today’s mortgage rates will affect your monthly payments and what loan options are available to you.
The pre-approval process is the perfect time to get this insight. It gives you a clear idea of the maximum amount you can borrow and helps you set a realistic budget. Armed with this information, you can tailor your home search to properties that fit comfortably within your budget, so you won’t fall in love with a house that’s outside your financial reach.
How Pre-Approval Helps You Stand Out in a Competitive Market
When you’ve found the perfect home, getting pre-approved is one of the best moves you can make. It doesn’t just make your offer look stronger—it shows the seller that you’ve already done the legwork and passed a credit and financial check.
Sellers are more likely to favor your offer when they see you’re a serious, prepared buyer with a better chance of securing financing. As Greg McBride, Chief Financial Analyst at Bankrate, says:
“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
Before you start shopping for a home, make sure you get pre-approved for a mortgage. It gives you a clear picture of what you can afford and puts you in a stronger position to make an offer quickly when you find the perfect place. Speak with a reliable lender today to learn more and get the process started.