A pre approval is a guarantee that a lender will give you a loan or a home loan if what you seek is a mortgage pre-approval. With the commitment to provide you with home financing up to a certain amount, you can make an offer on a property and increase your chances of owning it.
Think of a pre-approval as proof that you have the credit history, credentials, and money to buy a home within a price range or a maximum amount that a loan allows.
How to get a mortgage pre-approval
Getting pre-approved often involves a pile of paperwork.
These include two years of federal tax returns and W2 forms from your employer, pay stubs from the past month that show your year-to-date income, any other current real estate holdings, and a statement of all of your asset accounts, including CDs and stocks, within a 60-day or a quarterly period.
You also need to provide a residential history for the past 2 years. If you rented at some point within the two years, you also need to supply your landlord’s contact information.
Why real estate agent asks for a pre-approval
To protect themselves and their livelihood
Without a mortgage pre approval, there is a possibility that a buyer would back out and a deal would fall through. That’s time and energy wasted that translates to commission wasted.
To gain proof of financing
It is easy for a buyer to say they can obtain financing for a property even if they have yet to talk to a lender. With a pre approval, funding for a home purchase is guaranteed.
Save time and frustration
Real estate agents are not the only ones who will be frustrated when a deal goes bust, so will the buyer and seller. It’s like getting your hopes up only to be dashed at the last minute. Better to get pre approved before shopping for a property.
To boost negotiation strength
How much you offer for a house and the maximum amount you can spend on your purchase will depend on the financing you obtain. Without the certainty of a home loan, negotiations will be weak.