A Borrower’s Guide to Prequalification and Preapproval
Acquiring prequalification and preapproval on a mortgage is a great way to demonstrate to sellers that you are a serious buyer. It also helps ease the stress and anxiety of the home-buying process. Here's a step-by-step guide on how to get prequalified and/or preapproved for a mortgage in this competitive real estate market.
Find the Right Lender for You
When looking for a lender, it is best to choose one with a reputation for excellent customer service and competitive rates. Ask questions of potential lenders to ensure you get the experience you need throughout the home-buying process. If you at any point feel as though a potential lender doesn’t have your best interest in mind, it is best to cut ties and look elsewhere before going forward with any home-buying process. Our mortgage expert tells us, “It's kind of like the dating stage; if things in the relationship aren’t going well, it won’t be better once you get married.” Your credit union is a great place to receive personalized attention and competitive mortgage options. “At Texas Trust, our people are very concerned about anything member-facing and want to do our very best to treat members with the respect, courtesy and kindness that they deserve,” he states.
Get Prequalified
Prequalification helps you understand your budget and gives you an estimate of how much you may be able to borrow. It also offers you a competitive leg up in the home-buying process. Borrowers can expect that they will be asked about prequalification by the realtor or home seller. From the seller’s point of view, a prequalification letter shows a high level of interest and dedication when comparing offers. Our expert argues, “Let’s say you have four offers on the table, and three are from non-prequalifed folks that are just making an offer. Even if they offer a few thousand more, you’ve got an offer from someone who's prequalified. As a seller, you're going with the prequalified borrower.”
Plan Accordingly
Gathering documents like pay stubs, W-2 forms, tax returns, bank statements and proof of assets helps speed up the process. Having an accurate picture of your current debt, income and liabilities is crucial for the start of the preapproval process. Please note that your credit report is pulled as part of the prequalification process.
Submit a Preapproval Application
While prequalification acts as a general overview of what you can potentially borrow, preapproval is an extensive look into your assets and liabilities through documentation. Once you submit your application, the lender will review your financial documents, verify your income and assess your creditworthiness. From there, the lender evaluates your financial profile and determines the specific mortgage amount you qualify for and the interest rate you'll receive. Once you have been preapproved, you'll receive a letter stating the approved mortgage amount, term and interest rate. The only missing piece of the puzzle is the property you want to purchase. This letter allows you to present a more competitive offer in the home-buying process. When discussing preapproval, our mortgage expert states, “When you take this document, make a point of saying to your realtor that you are preapproved, not just prequalified, because they might think it’s the same thing. Show them your letter and follow it up with qualifying statements.”
Stay Disciplined With Your Finances
Do not make any major financial shifts, such as large purchases or changes in employment, as these can impact your mortgage approval. We asked our industry expert his thoughts. He says, “It’s not unusual for people to go apply for a credit card, buy furniture or get a new car for that garage. The advice that I would give to anybody that's in this space is to put those activities on the back burner for now. Take care of that house. It is the largest purchase that you're going to make. You need to make sure that the picture remains the same from that prequalification, preapproval, all the way to the time of closing.” Getting prequalified and preapproved for a mortgage streamlines your home-buying journey and positions you as a serious buyer in a competitive market. By following these steps and working with a trusted lender, you can set yourself up for success and confidently embark on the path to homeownership.
Still have questions you need answered? We’re here to help! Texas Trust is here to make your homeownership dreams come true. Our dedicated team of loan officers will provide you with the personalized guidance and support you need.
