June 22, 2021

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Home Loans: When To Get Pre-Approved

FHA loans

When should a house hunter choose to get pre-approved for a home loan? It’s a common question many borrowers ask. But there can be some confusion over this question because some use the term “prequalify” interchangeably with “pre-approval”. But these two terms actually mean different things.

Getting prequalified for a home loan is something you do early in the house hunting stages. You are not ready to make any offers yet but you want to let sellers know you are not window shopping.

Prequalification means the borrower has filled out some basic paperwork with a lender while in the house-hunting process. It is not loan approval and borrowers still, at this stage, have a ways to go before loan approval happens including filling out basic loan application paperwork (not pre-qualification paperwork).

Do You Always Need To Pre-Qualify?

Getting pre-qualified isn’t always done, but when you are serious about making offers on property it can be very helpful. But once you have found a home you might want to make an offer on, pre-approval is the tool you need.

About Pre-Approval

Pre-approvals can include expiration dates. A potential borrower may only have 90 days to use that pre-approval before it expires.

It’s a good idea to ask the lender how long your pre-approval is good for in that particular agreement. No two lenders are identical–always ask.

Pre-approval helps borrowers know how much mortgage loan they may qualify for based on income, debt-to-income ratio, and the amount of the monthly mortgage.

You will have a much better idea of how much loan you can afford after getting pre-approved. The pre-approval process requires the applicant to gather some important information:

  • Employment verification
  • Tax returns (from the last two years)
  • W-2s from (from the last two years)
  • Recent pay information
  • Housing history (own or rent)
  • Bank statements
  • Statements showing your other assets
  • Photo ID

Do you plan on obtaining down payment assistance? Your lender will ask you to provide a down payment gift letter from the gift giver.

This letter must include a statement that the down payment gift does not require repayment. Self-employed applicants need to submit additional information about their business such as a profit-and-loss statement.

Remember, home loans can be pre-approved and the mortgage loan process can move forward but the loan is never final until your closing date.

Until after closing day, borrowers should avoid applying for other lines of credit, making major income or career changes, and avoid major alterations to credit, income, or employment before the loan closes. Lenders can (and definitely WILL) cancel home loans due to substantial negative changes in a borrower’s financial position before loan closing day.

Joe Wallace - Staff Writer

By Joe Wallace

May 6, 2021

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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