Preapproved? What does that even mean?! Is it important?
08/15/2022
Preapproved? What does that even mean?! Is it important?
Getting preapproved by a lender and having a preapproval letter gives you a competitive advantage when you are shopping for a home, and necessary when submitting an offer on a house. Taking this important step can make all the difference between a seller accepting your offer or moving on to the next buyer. It will also give you parameters on what you can afford in a home and insight in to what a home will cost monthly.
Preapproval Tips
Provide to your lender:
- 30 days of the most current paystubs
- 2 years of W2s
- 30 days of bank statements
Your lender will ask for more information and documentation, as what is needed varies from borrower to borrower and from situation to situation.
What the lender considers:
- All three credit reports are pulled to review your scores, analyze your outstanding debts, and to review your past payment history.
- Debt to income ratio with a goal below 43%. To calculate this take your:
Total Monthly Payments (potential mtg, installment, credit cards, & student loan monthly payments) divided by Total Monthly Income (all applicants’ gross income)
What else should I know?
Keep in mind all the costs. Ever heard of the term house poor? Just because you’re preapproved for a certain amount does not mean you should spend that full amount. Keep in mind that you are also responsible for paying the property taxes and homeowner’s insurance. Usually your mortgage payment will be increased to include those expenses.
Adjustments can be made. A preapproval letter can be adjusted to match your offer. Your lender can easily make that adjustment.
Timing is everything. Your approval is usually good for 90 days so don’t start the process too early or it will lead to additional credit reports being needed.