The pre-approval process is often confused with the pre-qualification process. So, let’s start by explaining how they’re different. During pre-qualification, you provide basic information to be tentatively approved. This gives you a way to gauge your likelihood for approval and understand your financial options. In the pre-approval process, you’ll be asked to provide more in-depth financial and personal information. A decision is then made and a contract is created.
During the pre-approval process, your lender will want to look at four areas. Those areas include:
- Your credit history, financial situation, and other relevant personal details.
- The appraisal value of the home you are planning to purchase. This is to ensure no one is being over or underpaid.
- The title history of the property. This is to confirm who owns the property and whether there’s an existing mortgage.
- The condition of the home. This could include having an inspection or discussing areas that need to be repaired.
When you’re preparing to enter the pre-approval process, you’ll want to gather a few important documents. What will be necessary will depend on the home seller, but it’s better to be prepared. You should consider bringing:
- Proof of income such as pay stubs, a W2, or other tax information.
- Proof of current employment or proof that you own a business.
- A list of your assets and proof of their worth.
- A recent bank statement.
- A copy of your credit history.
- A form of official identification, such as your passport or driver’s license.
- Your social security card or other residency status information.
- A breakdown of your debt-to-income ratio.
If you don’t have these documents handy take some time to get them in order. The last thing you want when you’ve found your dream home is to lose it while you get your paperwork together.
If you haven’t checked your credit score recently consider doing that as well. Scores change often and can be influenced by anything from a missed payment to opening a new credit card. You want to know you’re working with the most up-to-date information when you begin the negotiation process. Once you enter the pre-approval process, avoid activities that could cause your score to change.