In a seller’s market, you increase your chances of landing a dream home if you have pre-approved financing in place. This tells sellers that you’re serious about buying. They will also feel more confident about escrow closing on time. But what exactly is mortgage pre-approval? And how long does it take?
Read on to learn more about what mortgage pre-approval can do for you and how a lender will decide whether or not you’re approved.
Pre-approval vs. pre-qualification
It’s easy to get pre-qualification and mortgage pre-approval confused. But it’s important to understand that they’re not the same thing — because if you get pre-qualified, you can still be denied for funding later on.
Pre-qualification comes before pre-approval in the home buying process. During this stage of the borrowing journey, you will self-report information about your finances. Your lender will then give you an estimate of what you’re likely to get approved for. A credit check may also be conducted.
Mortgage pre-approval goes further than a simple pre-qualification. At this point you complete a full application with a potential lender and submit official documents. You will prove your income, credit, and down payment at this stage. Once you’re approved, your lender gives you an official pre-approval letter that you can show to a seller’s agent. This is concrete proof of what your lender has agreed to.
What goes into a pre-approval?
Your bank will consider a variety of factors when you get pre-approved, from details about the property you want to buy to your monthly income. As a part of the pre-approval evaluation, you can expect the lender to ask for information that includes:
- What type of mortgage you’re asking for. You may get approved for a FHA loan but not a conventional loan, etc. Be clear about what you want to be approved for.
- Details about your life. Your type of employment, level of education, and number of dependents can all factor into how much you’re approved for.
- Income. You will probably submit multiple proofs of employment throughout the mortgage process. At the pre-approval stage, the bank wants to know your monthly income. You may also submit rental income, alimony, and other revenue streams as a part of your income.
- Monthly expenses. Your lender also needs to understand what your bills are. They will determine this through your own documents and a credit check.
- Debt-to-income ratio. Your income vs. debts help the lender determine what your monthly debt payments are in relation to your overall income. A DTI at 30% or below puts you in the best position for pre-approval.
How long does pre-approval take?
You may get a mortgage pre-approval letter as quickly as 10 days after you submit your application. The letter is only good for 90 days. That means it’s best to have a property in mind when you submit your documents. If you don’t find a place you love within three months, you’ll have to start the mortgage pre-approval process all over again.
What pre-approval means for sellers
For sellers, a pre-approved buyer means a smoother transaction. There is a smaller chance that the deal will fall through in escrow, and they may be more likely to accept your offer if you have a pre-approval letter in hand.
If you’re a seller having a hard time finding the right pre-approved buyer, consider calling California Family Homebuyers. We are able to buy using an all-cash offer. You won’t have to worry about our funding falling through. Plus, we close quickly. You may be able to select a closing date as quickly as seven days.
In Sacramento and can’t find a buyer? Call us today to see if we can help!