How to Get an Edge in a Competitive Housing Market

The mortgage pre-approval process can seem challenging, but it's an important step in your home buying journey that can give you an edge in a competitive market. This article will guide you through the pre-approval process, from understanding the difference between pre-qualification and pre-approval to gathering the necessary documents and securing a favorable mortgage loan.

Mortgage Pre-Qualification vs Pre-Approval 

Pre-qualification and pre-approval are often confused, but they represent different stages in the mortgage process:

Mortgage pre-qualification is the preliminary step that gives you a rough estimate of how much you may be able to borrow for a home loan. It’s based on the information you provide to the lender about your credit, income, and assets. While a credit score is typically not verified by the lender during pre-qualification, some will do a soft credit check. Some lenders provide a pre-qualification letter that you can present to real estate agents as proof of your financial readiness.

Mortgage pre-approval is a more formal process that involves a thorough review of your financial information. Your lender will verify your income, assets, and debt, and pull your credit report. Once approved, you’ll receive a pre-approval letter from the lender stating the maximum amount you’re eligible for. A pre-approval letter is a powerful tool when making an offer on a home, as it demonstrates to sellers that you're a serious buyer with the financial means to complete the purchase.

What Information is in a Mortgage Pre-Approval Letter?

A mortgage pre-approval letter typically includes the following information:

  • Lender's Name. The name of the financial institution issuing the pre-approval.
  • Borrower's Name. Your name as the prospective homebuyer.
  • Maximum Loan Amount. The maximum amount you're pre-approved to borrow.
  • Interest Rate. The estimated interest rate for your loan.
  • Loan Term. The length of your loan (e.g., 15 or 30 years).
  • Expiration Date. The date until which the pre-approval is valid.

Pre-approval letters include an expiration date, usually between 60 and 90 days. If you haven't found a home within that time frame, you'll need to request a renewal to ensure your pre-approval remains valid.

Benefits of a Mortgage Pre-Approval

A mortgage pre-approval can give you a significant advantage in a competitive housing market.

  • Streamlined Home Shopping. A pre-approval letter can make it easier to shop for homes within your budget. Your real estate agent can help you find properties that match your financial capabilities.
  • Stronger Offers. Sellers are more likely to accept offers from pre-approved buyers, as it demonstrates your financial readiness and commitment.
  • Faster Closing Process. Once your offer is accepted, the closing process can be expedited, as you've already completed the pre-approval steps.

Mortgage Pre-Approval Requirements

To obtain a mortgage pre-approval, you'll typically need to provide the following documentation to your lender:

  • Proof of Income. This may include recent pay stubs, W-2 forms, or tax returns (for self-employed individuals).
  • Asset Documentation. Statements for your checking, savings, and investment accounts.
  • Employment Verification. Pay stubs from your employer can verify your employment status and income. Self-employed individuals may need to provide additional documentation, such as profit and loss statements and tax returns.
  • Identification. A valid government-issued ID, such as a driver's license or passport, is required.
  • Social Security Number. This information is used to verify your identity and obtain your credit report.

By providing this information, your lender can assess your financial situation and determine your eligibility for a mortgage.

HFCU not only offers competitive mortgage rates, but also provides valuable resources to guide you through the pre-approval process. From application checklists to handy rate search tools, we’re here to support you every step of the way. Connect with one of our experienced mortgage lenders today to get started on your pre-approval application.