When buying a house buyers must be able to move quickly. Mortgage pre-approval is critical to this. There are two types of pre-approvals that are talked about in the real estate industry.
The first is a ‘soft hit’ or no hit against your credit if your broker is good, where they simply see what size of home you are eligible to purchase. This just gives you the ballpark you are playing in. The second type occurs after you have made a deal on a home and you go to the bank to do a ‘hard check’ on your credit, where they will take a closer look and provide a letter stating you can purchase the home you’ve offered on. They’d typically provide you a letter and then pass it along to the agents an lawyers involved.
No matter what type of pre-approval you are getting, here are some tips buyers can use to get approved faster.
Buyers need to know what their target purchase price is. This could speed up the pre-approval process according to Realtor.com.
If buyers have been saving for a down payment, they should also tell the lender the amount they plan to put down on the home. Again, this helps speed up the pre-approval process and ensures greater accuracy.
Check Your Credit
Lenders will check a buyer’s credit score before offering mortgage pre-approval. Checking their own credit first and making improvements if needed could help buyers speed up the approval process.
Buyers who have credit problems may want to reach out to their lender first to see what they can do to improve their credit situation. Lenders know what strong credit looks like and may help buyers make changes that improve the credit score quickly.
Knowing credit ratings before asking for mortgage pre-approval also helps buyers know what to expect from their mortgage offer. The better the credit, the better the terms on the mortgage the bank offers.
Get The Paperwork Ready
If the lender has to ask for a piece of paperwork after starting the approval process, a buyer will face delays. Organizing all paperwork and delivering it with the pre-approval application should help.
Start with proof of income that will be used to qualify for the mortgage including 30 days of pay stubs and the previous two years of tax returns with W-2s or 1099s. In Canada, they will simply need the summary page from your tax return, where your income is shown.
Buyers should then gather two months of savings and checking account documents. Finally, anything connected to retirement, assets, loans (student or otherwise), business debts (if not incorporated) or 401(k) (401k is USA specific) funds needs to be included.
If the buyer has any funds deposited that were from regular paychecks or do not show in the employment and payment records, they may need to have a written explanation. Some people bring a resume to make things clearer for mortgage brokers.
Present Everything Clearly To The Lender
Buyers who bring everything they need to the lender in an organized fashion should get their pre-approval letters quickly. Sometimes lenders can deliver the letter the same day that they receive the information.
That said, buyers with complications, like unusual employment structures or credit problems, may face delays. Most lenders are able to deliver an answer within a few days, even with complex applications.
Mortgage pre-approval is a critical tool in the negotiation tool box for home buyers. Doing a little homework and preparation first can help buyers get approval fast, even in a competitive market. With approval, the chances of a successful offer increase significantly.