5 - Why Get Pre-Approved For a Mortgage

Why and When to Get Pre-Approved For a Mortgage and What is The Difference Between a Pre-Approval and a Pre-Qualification?

By Richard J. Freedkin, Realtor, ABR, RENE, SRS

Unless you will be paying cash for your upcoming home purchase, you want to make sure your offer is as strong as possible in order to beat out other potential offers.

This is one of the reasons you want to get pre-approved ahead of time and since pre-approvals do not cost you anything, it is best to get it started at least a week before we go look at homes.

The other issue is to make sure we are actually looking in the correct price range for the home you want to purchase. There are many factors that go into a lender approving you for a mortgage and many times you just don’t realize a factor that can easily cause a loan to be denied. This is why it is critical to get this one component of the home buying process done BEFORE you even start looking at homes which will enable me to show you the homes that will make the process seamless for you!

Many people think they are “pre-approved” for a mortgage only to find out they were only “pre-qualified” for a loan. To put it bluntly, a pre-qualification is not worth the paper it is written on (if you even get a piece of paper for that).

Pre-qualification is nothing more than a loan officer asking you how long on the job, how much you make, how much in the bank and how your credit is. Very little is verified.

The loan officer will say something like… “based on the information you have given me; you should qualify for a loan of $xxx amount of dollars.”

The problem is that most of the information you verbally gave the lender is NOT verified and more times than not, the pre-qualification is inaccurate causing problems to show up later. As I was in the mortgage business for over 25 years, I know intimately the issues a pre-qualification creates.

NOTE: If you are looking to purchase a Condominium unit or Townhome or even a home that is part of a homeowners association that has association dues, please make sure the loan officer knows that and knows the amount of real estate taxes and condo association fees for the properties you are looking at.

A pre-approval may require you to supply a lender with:

  • 2 years complete tax returns along with the 2 years W-2’s
  • 2-3 months of all bank statements including IRA’s, 401k’s, Checking, Savings etc.
  • Last 30 days of paystubs
  • Last 2 years employers names and addresses and income information
  • Recent Social Security Award Letters and / or Disability Benefits statements from proper authorities (if applicable)
  • A detailed list of your credit card debt, loans and other liabilities including account #’s
  • If you will be or have received a gift from a family member you will need a lender approved gift affidavit as well as supporting bank statements from donors
  • Complete divorce decree along with separation agreements (if applicable)
  • Additional items lender may request if self-employed such as P&L statements
  • Additional paperwork if you will be applying for a VA loan such as a DD214 Form or certificate of eligibility or a power of attorney for active military along with an “alive and well statement”
  • If you have had a Bankruptcy or Foreclosure in the past 7 years, you may be required to produce additional information on that as well.

This may not be everything required as each loan application and qualification is different so please make sure to follow up on any requests by your loan officer quickly and in writing.

Then all this information is input into an automated underwriting system which will render an approval or a rejection. If you get a rejection, the loan officer will let you know what you need to do in order to turn that into an approval.

Gathering all these documents can usually be done in a day and once you turn them into the lender, you should have a pre-approval back within 24 hours.

Once you have the pre-approval, you will know exactly how much money you need to put down and what price homes to look at as well as how much the maximum real estate taxes should be. Knowing this allows me to look for and find the perfect home for you!

Having this written pre-approval will also let me submit that with any offers we write and will make your offer a much stronger offer than others.

IMPORTANT NOTE!!!

PLEASE DO NOT CLOSE OR OPEN ANY NEW CREDIT CARD ACCOUNTS OR TAKE ON ANY NEW DEBT, PURCHASE A NEW CAR OR FURNITURE OR CO-SIGN FOR ANYONE’S LOANS AT ANY TIME DURING THIS PROCESS.

ALSO, PLEASE DO NOT MAKE ANY LARGE DEPOSITS OR WITHDRAWALS FROM / TO YOUR BANK ACCOUNTS WITHOUT FIRST TALKING TO YOUR LOAN OFFICER ABOUT THEM.

DOING SO COULD JEOPARDIZE YOUR QUALIFICATION AND LOAN APPROVAL.

If you do not have a lender who can help you with this, I highly recommend you contact any of the lenders shown below.

Coming from the lending industry, I know the good lenders from the bad ones. The last thing you need is for the lender to call up on the day of your closing to tell you that they cannot close your deal because they need more information…

YES IT DOES HAPPEN – (more times then you want to know) - But it doesn’t happen with the lenders I recommend as they know what they are doing.

If you want to be sure you are getting competent lending advice as well as competitive rates, please speak to one of my recommended lenders listed below.

My recommended Lenders - Please be sure to tell them I referred you!

  • Matthew Medinger - Guaranteed Rate (708) 704-6277
  • Domenic Noia - Neighborhood Loans (630) 386-6096
  • Steven Tripp - Paramount Residential Mortgage Group (847) 512-1700

I hope you found this helpful, if you have any questions, please give me a call!

Richard “RJ” Freedkin, Realtor - ABR, SRS, RENE

eXp Realty, LLC

10 N. Martingale Rd., Suite 400

Schaumburg, IL 60173

Phone: (847) 922-8423

Email: rjgetsitsold@gmail.com

Website www.rjgetsitsold.com

Copyright 2021, 2022 - Richard J. Freedkin - All Rights Reserved