Mortgage pre-approval is a considerably more formal process that requires you to fill out a lengthy mortgage application form (either hard copy or digital), present supporting evidence to back up your financial claims, and have your credit reports and scores thoroughly examined. Because obtaining mortgage pre-approval is virtually the same as obtaining a mortgage loan, you may be required to pay an application fee.
Before agreeing to deal with you, some real estate brokers may request a mortgage prequalification. However, because a prequalification may not include any credit history or other evidence confirming your finances, it will not carry nearly as much weight with sellers as a mortgage pre-approval.
What Are the Requirements for a Mortgage Pre-approval?
Mortgage pre-approval is a lengthy process because it necessitates the submission of a mortgage application. You should be prepared to submit the following items with your application:
• Personal information: Proof of identity, such as a copy of your passport or driver’s license, as well as your Social Security number, will be required by the lender.
• Credit check permission: You will also be requested to authorize access to your credit records and credit score. To avoid surprises and to give you time to clear up any credit report mistakes that may be decreasing your credit score, check your credit report and credit scores yourself at least six months before beginning the pre-approval process.
• Income details: Pay stubs, bank statements, and tax returns for the last two years are required to demonstrate your income. If you are self-employed, the lender will take the average of your annual income from the past two years, as shown on your tax filings.
• Debts and assets: Mortgage lenders often want to see evidence that you have the resources to meet your loan down payment and help you make your loan payments if your work status or income changes. Savings, investments, and property are examples of assets. Loans and credit card balances will be listed on your credit reports, but you will also be questioned if you have any other debts.
It should be noted that down payment and other asset requirements may differ depending on the loan type:
• Qualifying loans that meet the requirements for purchase by Fannie Mae and Freddie Mac, the federal government-sponsored firms that purchase the majority of the nation’s single-family mortgages, demand a down payment of 20% of the purchase price.