Getting Preapproved

So you’re ready to buy a home. You’ve been shopping online and maybe have even run some numbers on an online mortgage calculator, and now you’re ready to contact a loan officer to get the ball rolling. 

Prequalification vs preapproval?

While you’ll hear the terms thrown around together, there is a significant difference as regards your ability to buy a home. When you talk with a lender to get pre-qualified, you have a conversation with them about your income, assets and so on. They give you an educated guess of your buying power, based on your information. This is a great first step. This conversation with a professional can help you identify weak areas or goals for sorting out your finances if you’re not quite ready yet. 

A preapproval goes a step further. You’ll submit actual documentation (see the checklist below) and the loan officer will run a credit check too. Instead of a ballpark figure, you’ll receive a signed preapproval letter, stating that the mortgage professional has reviewed your documentation and this is your official loan limit (barring changes to your income, employment and so on, of course). 

In our local sellers market (while markets fluctuate in intensity, Whatcom County’s residential market has leaned towards a sellers market or even a hot sellers market since roughly 2014), buyers need to have a preapproval letter to submit along with their signed offer. And since Covid, some sellers will require proof of preapproval prior to scheduling in-person showings.

Your documents checklist:

Be prepared for your first meeting with your loan officer by pulling some documents ahead of time!

What you’ll definitely need:

• 2 paystubs (or corresponding commission-based income)
• 2 years tax returns
• 2 months bank statements (all accounts)
• List of debt statements (monthly payment amount and loan balance especially)

You might also need: 

• Retirement account statements, gift letters, or documentation of any other down payment sources
• Real estate rental income records
• Divorce decree and/or child support records

Depending on your specific situation, your loan officer may need more information in any one or more of these categories. It’s a good idea to hang onto all your paystubs and bank statements during the home buying process so you can keep your loan file updated - and tell your lender of any changes to your employment or income!

A note on credit scores

Your credit will be based on your history in 5 categories

• Payment history
• Amounts owed
• New credit
• Length of credit history
• Types of credit

Avoid financing hiccups:

Tell your loan officer right away if there are any changes to your employment, salary, or credit history. If you get a raise, send in an updated paystub; if your job status changes, your loan officer and real estate agent need to know right away - especially if you’re already under contract. 

Avoid making any large purchases (like appliances and furniture) until after closing. If you’re buying them on credit, this will show up on your final credit pull (which often happens near closing day). Even if you’re paying cash, this could cause issues if your loan program requires a certain amount of savings to be kept in reserves. We totally understand that you’ve been scouring the Internet for your perfect new couch - just don’t hit Add to Cart til after the sales deed is recorded!

Don’t open any new accounts (or close any) til after closing on your home. The number and type of credit lines are part of your credit score, so making any changes could affect your final loan approval. Along the same lines, don’t cosign anything for someone else either. 

Bottom line is: once you’re seriously home shopping, all your finances need to stay as stable and unchanging as possible. Reach out to your loan office right away if anything changes out of your control, and don’t hesitate to ask questions!

Have questions about the homebuying process? Check out our Guide to Buying a Home and our Mortgage 101 series. And if you haven’t yet, connect with one of our real estate consultants to get started on your homeownership journey!