What is a Pre-Approval?
One of the first steps in buying a house, even before finding a trusted Real Estate professional and signing a buyer broker agreement, is getting pre-approved or prequalified for a mortgage. To answer your questions about this process and to determine the difference between preapprovals and prequalifications, I sat with a team of mortgage bankers from the Greenlawn, New York Branch of Total Mortgage Services.
Total Mortgage, founded in 1997, is one of the only mortgage companies to survive the 2008 housing market crash due to its dedication to its customer’s needs. They focused on getting customers loans they can afford to allow them to weather the storm. Today they continue that focus by building teams of mortgage bankers who work together in the over 35 Branches nationwide, 14 of which are in Connecticut.
During our conversation, we discussed 8 questions about the preapproval process. Below is a recap of those questions and the answers were given. If you would like to see the full interview, click the link below and watch it on my YouTube Channel.
What’s the difference between a preapproval and a prequalification – 00:00:12
A pre-approval is when you give all the documents upfront, it provides a much stronger offer than a prequalification. Prequalification is not fully verified and can lead to a buyer getting overqualified for a loan.
What kind of things do you look for in a Pre-approval vs a Pre-qualification? – 00:01:05:14
In getting a preapproval versus a prequalification, the loan officer is looking for consistency of income over time of at least 2 years. The job history does not have to be in the same place; however, it has to be in the same industry, and in being in the same industry, there has to be some improvement shown as:
- An Increase in hours
- An increase in pay
What type of info is needed for preapproval? – 00:01:44:18
- W2 for the last two years
- 30 Days of paystubs
- Bank Statements for the last 2 months
The W2 and the 30 days of paystubs show what you have been doing for the last two years and year-to-date, and will tell the Mortgage banker if you are:
- Doing the same
- Doing better
- Doing worse
The bank statements show that you have the money to put as a down payment/deposit and to close.
What allows a buyer to get a higher preapproval? – 00:03:55:20
The major way to maximize your preapproval or mortgage affordability is lower taxes. $200 in lower yearly taxes could translate into $50,000 more in mortgage affordability. The lower the taxes the more purchasing power you have.
How does credit impact preapproval? – 00:04:17:10
When it comes to credit, credit determines the type of loan you are going to get. With an FHA loan, your mortgage insurance is going to be on the loan for a much longer time. The better your credit is, are better off going with a conventional loan. With a conventional loan, the mortgage insurance can be paid off in as little as a year and a half.
Some advice is, if you are not putting down 20%, put down the minimum amount of money you can secure the home, then, once in the home determine the best possible route to pay off the loan.
Do Interest Rates come into account during the preapproval process? – 00:06:36:20
Though important in the overall mortgage process, the interest rate is not a major determining factor in either the preapproval or the mortgage. The interest rate can shift a payment of 50-100 dollars per month. If you are worried about a 50-100 dollar shift in payment, then the conversation is less about whether can you get qualified for the mortgage versus whether should you be getting qualified for a mortgage.
How are property taxes accounted for during the preapproval process? – 00:10:19:04
Taxes are very important, so knowing the area of interest is important. This allows the mortgage banker to better qualify a house as well as pinpoint a clear estimate of payments.
What are other things buyers need to know about the preapproval process? – 00:11:10:03
Have the documents ready to go. The faster the documents are ready the faster the pre-approval process can be completed, and the loan can be processed.
If you have any questions, please feel free to reach out to me.
