Skip to main content

The Home Buying Process: The Loan Pre-Approval

Michelle has been a Real Estate Broker over 15 years. She loves educating buyers and sellers on how to make their transactions go smoothly.

Your lender will help you choose the type of home loan that fits your needs the best.

Your lender will help you choose the type of home loan that fits your needs the best.

Loan Pre-Approval

Obtaining pre-approval for a home loan or mortgage is a critical step in the home buying process. If you don't already know which mortgage company you will be using, your real estate agent will have a list of good lenders you can choose from. There are different types of home loans, and you need an experienced lender. One with a good reputation for getting the job done. You can also ask family and friends if they know a good lender. Compare a few and choose the one you feel good about. Like your real estate agent, you will be talking to this person often. Make sure you feel comfortable with them.

Your lender will help you choose the type of home loan that fits your needs the best. Common home loan types are conventional, VA, FHA, and USDA, but there are many others. The video at the end of this article explains the differences in the loans.

Tips for Choosing the Right Mortgage Company

Ask a lot of questions. You can interview a lender just like you would anyone else. How long has the company been around? What does your agent think about their home loans and service? Do they offer competitive interest rates? Are their fees reasonable? If you are a first-time home buyer, what types of home loans do they have for you? Are there any first-time home buyer incentives?

A Few Items You May Need for a Home Loan Approval

  • Bank statements
  • Proof of income/Check stubs
  • W-2s and/or tax returns
  • List of expenses
  • List of debts

Keep Your Credit Score Looking Good

One misconception about VA loans is that everyone who's in the military or a veteran can obtain one. That's just not true. Even though it may be available to you does not mean you will automatically qualify for a VA loan. Credit scores and debt-to-income ratios will still be a factor in the loan approval process. There are several reasons one may not get approved for a home loan.

It's crucial not to add anything to your credit report during this time. Creating debt after the pre-approval may affect your ability to obtain a mortgage in the end. Don't go out and co-sign for anyone. Don't make big purchases on your credit cards. Some lenders don’t want you to use them at all until your loan closes. Don't do anything that will increase your debt. Don't go out and buy a car. Yes, this has happened, and at closing, the buyer's debt-to-income ratio was too high to close on the house. When I advise you not to buy anything, I'm not saying it because I like to hear myself talk; I'm saying it because it does matter! Thankfully this buyer was able to buy only a year later.

Remember, loan pre-approval is a very important part of the home buying process. Without a pre-approval, you don't know your price range or how much house you can afford. Many buyers want to go house hunting before they are pre-approved. When you do this, you could be setting yourself up to be disappointed. Most experienced real estate agents won't show you homes before you are pre-approved unless maybe you are a past client. Don't get offended because they are just putting your best interest first. You don't put the cart before the horse.

Once you have your pre-approval, your real estate agent will be able to help you find homes in your price range, meeting the criteria you have set. The next stage is one of the most exciting parts of the home buying process: the search for your future home.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2016 Michelle McLaughlin