Before you shop for a home, it’s a great idea to get pre-approved. This lets sellers and realtors know that you are serious about buying a home. It also lets them know that you can get the financing you need to buy it. Without this letter, some sellers may not entertain your bid. But once you have the pre-approval, what’s the next step?
The Next Step
Once you have your pre-approval, it’s time to start house hunting. Most pre-approval letters are only good for 60 to 90 days. If you can’t find a home within that time, you may have to go through the approval process all over again.
When you get pre-approved, the lender will supply you with a letter that states the amount of money you are approved to borrow as well as the conditions that you must meet to get final approval.
Sign the Purchase Contract
Once you sign the purchase contract, you’ll submit it to your lender. Since they did the preliminary work on your loan already, they can move right to the conditions that pertain to the property itself. This means the appraisal and title work to make sure the home is in good condition and is available for transfer.
Since the lender already evaluated your credit, income, and assets, they may just review these documents again to make sure that you are a good candidate for the loan. If too much time has passed since your pre-approval, though, they may ask for updated documents just to make sure that nothing has changed.
Pay for the Appraisal
Once the lender gives you the go-ahead for the loan, you’ll pay for an appraisal. The lender needs the appraisal to make sure the home is worth as much as you bid on it. The appraiser will evaluate the condition of the home and determine it’s fair market value based on the comparable sales in the area.
If the appraiser comes back in lower than your purchase price, you may have the chance to appeal the appraisal. Your lender may even have a process to deal with low appraisals, which may include using their in-house appraisal review team to help determine the validity of the value.
Pulling Your Credit Again
One thing that many people don’t realize is that your lender will pull your credit again before you close on your loan. Even if you have a pre-approval that didn’t expire yet, the lender needs to make sure that nothing changed on your credit report since you applied for the loan.
Most lenders pull your credit on the day of your closing or at a day or two before. If anything drastically changed on your credit, it could be a red flag in the lender’s eyes, forcing them to delay your closing. The best thing you can do is avoid applying for any new credit. You should also pay your bills on time and avoid using your credit cards until you close on your loan.
Verifying your Employment
Just as the lender will pull your credit again, they will also verify your employment before you close on the loan. This is just a quick phone call to verify that you still work at the same employer. If you change jobs or the employer can’t verify your employment there any longer, the lender may delay your closing.
Getting a pre-approval for your mortgage is a crucial step in the home buying process. Keep in mind that you’ll still have to go through some underwriting to ensure that you qualify for the loan. The pre-approval is just the first step; you still have many hurdles to jump through before you can get to that closing table.