What is mortgage pre-approval, and do I really need it?
We spent some time with Karly Tindell of Fairway Mortgage in Temple, Texas to discover more about how homebuyers can win in a seller’s market, which includes getting a pre-approval letter from a qualified loan officer, like Karly. Enjoy!
If you’re ready to transition to a new home, you’ve probably been paying close attention to news about the current seller’s market. It’s intimidating—a buyer navigating a seller’s market has some huge hurdles to jump, including figuring out what a mortgage pre-approval is and how to get one.
Plus, there isn’t much inventory—homes are being snapped up the day they hit the market, and for top dollar in many regions. You need to act fast, but how?
Pre-approval: the secret weapon
How can you purchase a home when there are so many buyers out there competing with you?
One way is to be an all-cash buyer who can complete the purchase in a matter of days. But for those of us who aren’t sitting on a pile of cash, there’s another way to stand out to a seller. The secret is to become pre-approved for a home loan. That might sound almost like you’re putting the cart before the horse—why would you mess around with loan paperwork before you even make an offer on a house?
The reason is simple: You’ll look like a rock star to the seller.
Unlike your competitors, your offer will come with a letter from your lender stating that you’ve got what it takes to seal the deal. That sets you apart from potential buyers who don’t have their financial ducks in a row.
Loan Officer Karly Tindell of Fairway Mortgage in Temple, Texas, explains it this way: “You want to show the seller that you’ve gone through the mortgage preapproval process. You’ve taken the necessary steps to meet financing requirements for a mortgage. A pre-approval letter shows you’re serious—you’re a solid, qualified borrower compared to someone who just says, ‘Hey, I want to buy your house and I think I might qualify for a loan.’”
What’s the difference between prequalification and mortgage pre-approval?
Okay, you’re on board with getting pre-approved.
But you’ve also heard about prequalification—is it the same thing? Prequalification is like Pre-Approval Lite. To be prequalified for a home loan, lenders take your basic financial information and make an educated guess that you’ve got what it takes to get a loan.
So if you’re serious about having your offer accepted by a seller, it’s best to choose pre-approval versus prequalification. Dive into the deep end with a lender, fill out an in-depth application with all your financial history, and get their seal of approval—a letter saying you’re pre-approved (usually good for 120 days)—they will loan you money to buy a house.
Charlsie Barfield, a Sojourn Real Estate REALTOR®, advises her clients to pursue pre-approval letters from reliable local lenders. “If a seller has four offers in front of them and they see a pre-approval letter from a reliable local mortgage company, like Fairway here in Temple, they’re assured that the lender knows the market and won’t have any issues come up during the closing process. That’s a huge advantage when you’re competing with other buyers.”
No one’s perfect. If you doubt whether you could qualify for a loan, take heart. “One thing I see a lot is people who have issues with credit who won’t even try to apply for a loan,” Barfield says. “They say, ‘Oh, I can’t get a house.’ Well, lenders like Fairway help people fix their credit. A good loan officer will know ways to raise your credit score. That might take time to fix, but then six months from now, with the lender’s help, the buyer could be purchasing a house.”
Convinced to apply?
To get a pre-approval letter for a home loan, you’ll need:
- Proof of income, like:
- 30 days’ worth of paycheck stubs
- Your most recent W-2 form sent from your employer stating your wages
- Gig workers or sole proprietors can show the last two years’ tax returns documenting self-employment income
- Two recent checking account bank statements
- Gift letter — if you received funds as a gift from family or friends, you’ll need a letter stating they don’t expect to be paid back
- Rent history — if this is your first home purchase, some lenders might ask to see proof you’ve paid rent on time for a year
- The lender will also run your credit report (don’t panic—see above!)
Tindell explains that a mortgage pre-approval status has a shelf-life, but does give a buyer some time to make multiple offers: “We put a date on our letters and even if the borrower finds a different property a week later, I’ll update that letter for them with a current date. At the time the credit report is pulled, it’s good for 120 days. So the buyer has that long to shop around.”
If you’re ready to move past the seller’s market roadblocks and purchase a home, our Sojourn Real Estate team will guide you every step of the way. Reach out to a Sojourn Real Estate Agent to learn what you can do to stand out from competing buyers and strike the best deal on a new home.