April 16th, 2019 11:46 AM by Jackie A. Graves
While everyone's homebuying timeline is going to be
different, it's highly recommended that everyone work with their lender to get
pre-approved before beginning to house hunt. Shopping with a
pre-approval letter in hand boosts the confidence of both you and the seller
which helps your journey run a lot smoother. So—what is a pre-approval letter
and how do you get one? Gather your travel documents and let's hit the road.
What is a pre-approval
A pre-approval letter is a letter from your
lender that tells you the maximum amount you are qualified to borrow. Getting a
pre-approval letter is not a loan guarantee, it is simply documentation that
states how much a lender is willing to lend you—pending further details.
By starting your
homebuying process in the lender's office instead of in an open house, you can
discuss loan options and budgeting with your lender. This should provide you
additional guidance for your house hunting price range.
are also valuable to the seller because it proves you are a serious buyer. A
pre-approval letter confirms that your credit and documentation have been
verified—which can help you move faster in the competitive spring homebuying
market. Be aware, pre-approval letters have an expiration date so be sure to
ask your lender how long your letter will remain valid.
What is your lender
Start by getting in
touch with a lender and filling out a loan application. Your lender will ask
you to provide W–2 statements, bank statements, credit report and tax
returns. They will want to make sure you are a good credit risk and have the
financial ability to make your payments on time.
To do this, your
lender will assess and evaluate the “four Cs”:
Capacity: Your current and future ability to make your payments
Capital or cash reserves: The money, savings and investments you
have that can be sold quickly for cash
Collateral: The home, or type of home, that you would like to
Getting a pre-approval
letter doesn't mean you are committing to that lender for your loan. You will
want to talk to multiple lenders to decide who
can offer you the best deal that meets your needs. Note, the amount listed on
your pre-approval letter not necessarily how much you should borrow – it's the
maximum. Only borrow an amount that you feel comfortable repaying.
What to know more
about the homebuying process? Be sure to follow our spring homebuying series.
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