Mortgage Preapproval: Understanding the Why and How

Posted by DB Wilson on Tuesday, December 4th, 2012 at 4:53pm.

For many first-time buyers, the process of finding and purchasing a home can seem exhausting. One of the most important things buyers can do to make the entire experience easier is getting preapproved for a mortgage. Here's how to get preapproved for a mortgage, and why it’s so important.

In short, getting preapproved for a mortgage, and obtaining a letter of preapproval, means that a mortgage lender has verified that you’re eligible for a mortgage of a certain amount during a certain period of time. This helps you, the buyer, in two ways. The first is that it provides you with parameters in which to start your house hunt. When you know how much you can borrow, you know how much home you can afford. The second reason is that it bolsters your credibility, and makes both your agent and the seller take you seriously.

Today, most agents and sellers won't want to work with buyers who aren’t pre-approved for a mortgage.  And in a market where a buyer may need to act fast, this is critical. If two buyers put in an offer, and only one is pre-approved, then they are going to land the property.

So how do you get pre-approved? All it takes is a little preparation.

1. Prepare your financial biography In order to gain mortgage preapproval, you need to lay all your money matters out on the table. A lender needs to review your income, credit and assets so they know you can make your monthly payments. While different lenders often require different specificities, you will most likely need to gather the following documents: • W2 statements (or 1099 income statements) for the last two years • Federal tax returns for the last two years • Bank statements for the last two to three months • Pay stubs from the past two to three months • Gift letters, if you received a financial gift to help with the down payment • Your credit score

2. Shop. Shopping around—and shopping around early—is smart when you’re looking for preapproval. Talk to a few different mortgage lenders to find the best mortgage deal. Sometimes you will have to pay a fee, but often the lender waives it in hopes of reeling you in. Talk to two or three lenders, and to make sure the lender is credible, feel free to visit the Better Business Bureau's web site to find out what kind of reputation they have.

Most mortgage companies have an online pre-approval form available on their website. Although you will need to follow up with a lender, beginning the process online is an easy way to get things moving.

Once you have been preapproved, you will be given a preapproval letter, which is good for 60 to 90 days, depending on the lender. Be prepared to show this letter to sellers when making an offer, and if your home search looks like it may continue beyond your letter’s expiration date, contact your lender for an extension.

For more information on securing a mortgage, please contact RE/MAX of Boulder, Inc. at 303-449-7000, or 1-800-825-7000.

RE/MAX of Boulder, Inc. located on the corner of Canyon and Folsom, is nationally and locally recognized as one of the most successful real estate offices in the industry. Nationally, they are one of the "Top 500 Power Brokers in the United States" as listed in National Real Estate & Relocation magazine. Real Trends ranked them #1 in the Nation for Closed Sales Volume for 2010. Regionally, for the 5th year in a row, the company has been named the #1 RE/MAX office in America for Single Office Closed Volume. They can be reached at 303.449.7000 or visit http://www.BoulderCO.com. Connect with them on Facebook and Twitter, search remaxofboulder. Subscribe to their YouTube channel and see videos of all their homes for sale at http://youtube.com/remaxofboulder

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