You may have heard the claim that if you don’t have a mortgage loan pre-approval in-hand, you don’t stand a chance while house-hunting. But what exactly is a loan pre-approval, anyway? And does it really help you stand out from the competition when it comes to nabbing your dream house?

Let’s break down the pre-approval process and find out!

1. What is a loan pre-approval?

Don’t be fooled: a mortgage pre-approval isn’t a promise that you’ll get a loan for your dream house. What a pre-approval does mean is that a loan officer has looked at your finances—income, debt, assets, and credit history—and made a determination of how much money you can borrow, how much you can pay per month, and what your interest rate would be.

So, what’s so great about having one?

Well, once a lender has issued the green light on your pre-approval, you’ll get a lender letter. You can then share this with the sellers of a home you’re seriously interested in. This letter shows them that you’re already working with a lender, and more importantly, that the lender is willing to work with you. It can give sellers some peace of mind to know they’re not wasting their time on a buyer who potentially couldn’t afford their house.

2. Why you want a mortgage loan pre-approval

As we’ve already stated, while a pre-approval isn’t a guarantee that you’ll get a mortgage, being pre-approved does have some real advantages. 

1. Bring confidence to your home search. If you know your home budget, you’re better able to stick to it during your home search. Save yourself the heartbreak of falling in love with a house you can’t truly afford.

2. Fast-track your closing. Most of your information will already be in the lender’s system, so by obtaining a pre-approval before shopping, you’ve accelerated the loan process once you find “the one” and want to make an offer.

3. Establish your credibility as a buyer. A loan pre-approval shows sellers that you’re serious. You have your finances in check, you’re looking to buy a house, and that you’re not likely to be denied a mortgage should they decide to sell their home to you.

3. Is pre-approval the same as pre-qualification?

Short answer: no. A mortgage pre-approval and pre-qualification are not the same thing.

The difference lies in the depth of the lender’s research. For pre-qualification, your income, debt and assets are self-reported to your lender. Your lender then—without questioning your numbers—says, "Based on the numbers you gave us, you may qualify for this much of a mortgage."

But here’s the catch: those numbers don’t have to be accurate. If you skewed the figures—for instance, if you weren’t honest about your income, tax returns, or your debt—a pre-qualification is really only a rough estimate.

A pre-approval, on the other hand, is more of a thorough peek into your finances. In other words, you’ll have to back up your numbers. This is also the point at which your lender will pull credit history, verify income and assets, and assess your financial situation before issuing a pre-approval.

4. What do you need to get pre-approved?

Here’s what your lender is likely to need to get a pre-approval issued:

Identification

• Driver’s license or U.S. passport.

• Social Security card or number.

• If you aren’t a U.S. citizen, a copy of the front and back of your green card(s).

• Credit score/history.

• Employment verification. Your lender wants to see that you have a stable job history. They’ll likely call your current employer and verify your employment and yearly salary.

Income

• Recent pay stubs covering the last 30 days.

• W-2 forms from the last two years.

• Proof of any additional income.

• Last two years of personal federal income tax returns (with all pages and schedules).

• Last two years of business federal income tax returns (with all pages and schedules).

Assets

• Bank statements that prove you have sufficient funds to cover down payment and closing costs.

• If someone is helping you with the down payment, you will need a gift letter stating that the fund is a gift and not to be paid back.

• Last quarterly statements for asset accounts (like a 401(k), IRA, stock accounts, or mutual funds).

Have questions about whether or not you’re ready to get pre-approved? Our lending department here at Team Lassen would be more than happy to assist you in your journey! We know that loan pre-approval puts you on the fast-track to the home you want, so it’s definitely in your best interest to secure one prior to serious house-hunting! Once you’re there, we can help you find that dream house, too!