Homebuyer Education

Making Sense of My Mortgage Pre-Approval

Jess Zhao | 5 Mar 2019

Buying a home is one of the biggest purchases we make in our lifetimes. Most of us don’t pay all cash upfront. Instead, we put some cash down upfront (the down payment) and take out a special type of loan called a mortgage to make the purchase possible.

How do I get a mortgage pre-approval?

Getting a mortgage pre-approval is an important part of the home purchase process. In this step of the process, you confirm exactly what you are able to afford and develop a better understanding of what your monthly costs would be if you were to purchase a home.

Once you have found a home you can purchase based on your mortgage pre-approval, your lender will let you know the conditions you must satisfy before you will be fully approved for your mortgage.

The application process involves:

  • Finding a mortgage lender you trust. This could be a financial institution that you have an existing relationship with – perhaps it’s the bank where you have a savings account, or the lender that helped you refinance your student loans, or a new relationship you forge as part of the homebuying process. Landed works with participating lenders who focus on helping buyers understand their mortgage options to make the most informed choice possible, and who focus on supporting essential professionals and middle-income families.

  • Completing an application. In the application, you may be asked to answer questions about your finances and the type of home you’d like to purchase, authorize the lender to pull your credit report, and more. If you are applying for a loan with somebody else, you should complete this application together.

  • Submitting key financial documents. You will be asked to submit financial documents that may include your tax returns, W2s, pay stubs, and retirement accounts.

All of this information helps a lender accurately develop an understanding of your full financial portrait and what you can afford to buy.

How do I make sense of my mortgage pre-approval?

At the end of this process, you’ll get a mortgage pre-approval letter. This is a document that typically outlines a few key pieces of information:

  • Loan amount. This is the amount that the institution would be able to lend you based on the information provided in your application.

  • Purchase price. This is the price of the home you’ve been pre-approved to buy. This is the loan amount plus the down payment funds you are planning to contribute.

  • Pre-approval issue and expiration date. The date the letter was issued, and the date the pre-approval expires. The expiration date is typically 1 to 6 months after the issue date.

  • Interest rate. This is the interest rate at which the institution would be able to lend you the money.

  • Mortgage product. Your pre-approval may include the mortgage product you’ve been pre-approved for, such as a 30-year fixed rate mortgage or a 10-1 ARM.

  • Conditions. Because a pre-approval is not a final commitment to provide a mortgage, lenders will typically articulate the conditions you must satisfy before you will be fully approved for a mortgage. These may include: an acceptable contract for the purchase of a home, all closing requirements such as a satisfactory appraisal, proof of homeowners’ insurance, and more.

  • Monthly costs and closing costs. Some pre-approvals may also contain a breakdown of what your total monthly payments would be if you were to move forward with this mortgage, as well as a breakdown of the one-time closing costs you could expect to pay after you have an offer accepted on a home and before you become an official owner of the home.

If there’s any aspect of your mortgage pre-approval that you don’t understand or would hope to modify, talk to your lender! Many buyers get an initial pre-approval and use it as a basis to discuss other options – for example, if you hope to qualify for a different purchase price, you may consider exploring different types of loan products.

We recommend you set up a time to walk through your mortgage pre-approval in depth with your loan officer.

Should I shop around?

Buying a home is a big purchase, and it’s important that you feel comfortable and confident about your mortgage. We often get asked if it makes sense to “shop around” and apply for mortgage pre-approvals at a few different lending institutions.

Every situation is different. Some families apply at one institution and are happy with the service, interest rate, and total financial package. Other families may aim to deeply understand all the options available to them and complete the mortgage pre-approval process at a handful of lenders to compare.

One thing to keep in mind: applying for a mortgage pre-approval at a few different lending institutions could have an impact on your credit score. To mitigate the impact of this, some buyers plan to discuss their financial situation with each lending institution before completing the formal pre-approval process.

When in doubt, we recommend picking up the phone or setting up a visit with your loan officer – there’s no such thing as a silly or trivial question when it comes to your finances. The most important thing is that you feel fully informed and confident in the mortgage that you get. 

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Homebuyer Education

About the Author

Jess Zhao

Jess is Head of Customer Experience at Landed, where she spends her days working with homebuying teachers. You can reach her at jess@landed.com

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