If you’re thinking about buying a home in 2023, the first step you’ll want to take is an important one that is sometimes overlooked. You need to start by getting pre-approved. The pre-approval process will help you become a more informed buyer and help give you an edge in the market over those who are looking alone. Best of all, it’s fast, easy, and the process sets you up for success in your home buying endeavors.
Brad Benham, vice president and senior mortgage loan officer at Towne Mortgage of the Carolinas, encourages potential buyers to get in touch well before they want to buy. Here are a few considerations he suggests you understand for pre-approval.
Why get pre-approved?
Benham said pre-approval isn’t just important for the buyer. It’s just as important for a seller, too. That fact is especially true in a current Triangle market, there’s still high demand for housing.
“For the buyer, it helps them know that they’re looking in the right price point as well as what the monthly budget they want to end up with as far as a monthly payment,” he said. He further explained it’s important for buyers to know that budget as they house-hunt, which can eliminate a situation where buyers find a home outside of their price range. “Typically, what happens at that point is this: they’ve seen something that they really love, only to find out that they cannot afford it or don’t want to afford it.”
Likewise, sellers are interested in what a buyer can afford, and Benham said that’s significant in the Triangle in 2023. “We are starting to see a lot of multiple offers come through, which means you’ve got multiple people trying to purchase the same home,” he said. “The sellers are going to select the person with the strongest offer, and a strong offer includes the person who’s buying the property and being able to actually close on the property. Just because you’re offering the most money doesn’t mean that you’re necessarily going close on it.”
What is needed to get pre-approved?
Benham encourages anyone who is considering purchasing a home to contact him immediately, especially if they’re already working with an agent. “I tell people any way you can get them over to me, whether that is a phone call, a text, an email, something,” he said. “Do an introduction so I can reach out, and the potential buyer can reach out to me.”
Next, Benham encourages potential buyers to discuss their needs with him. “I like to have a phone conversation with people, even though my bank does have an online application where you can go in and fill it out online. With that conversation, I’m able to help them understand the process. Many times, I will go ahead and start taking notes and do the application over the phone.”
While the typical online application only takes 10 to 15 minutes, Benham encourages potential buyers to pick up a phone to talk to him. “If I have that initial conversation ahead of time, they’re prepared, they know what they’re going to need to fill out.
Benham said typically, buyers need specific financial documents, including two years of W-2 statements, 30 days of pay stubs, and a recent bank statement. He may help you identify other critical information, such as child support payments, which need to be disclosed, as well as other types of debts that some buyers may overlook on their own. He can also help guide self-employed buyers through the documents they need as well.
How long does it take to get pre-approved?
Benham said once a potential buyer has filled out the pre-approval application, the approval time varies. “Depending on your situation, it can take anywhere from two hours to several days, depending on if I need some documents that you haven’t provided,” he said. “Lots of times it’s up to the buyer as to how quickly they will provide that information.
Is there a difference between pre-approval and pre-qualification?
Benham cautioned buyers to be aware of the difference between pre-approval and pre-qualification. “Pre-approval and pre-qualification technically don’t have any industry standard as to what they mean,” he said. “For my bank, a pre-approval means that we have pulled credit, we have analyzed your income, which means we have your pay stubs, W-2’s, tax returns, and whatever is necessary to determine that yes, we’ve got the correct income and that you qualify.”
If you are pre-qualified but not pre-approved and you put down a due diligence or builder deposit, Benham said you could lose those funds if the offer falls through because you don’t end up qualified to buy.
“It’s really incumbent that buyers do get themselves pre-approved and feel comfortable with what they’re doing,” he added. Benham recommends working with a local, brick-and-mortar lender like Towne Mortgage of the Carolinas to make sure you are pre-approved. “The number one thing that people need to do as a consumer is have that phone conversation or an in-person conversation with whoever is doing their financing so that they understand and have the opportunity to ask any questions that they don’t understand.”
When should a person get pre-approved?
Benham said it’s never too early to get pre-approved. “My advice is as early in the process as you can,” he said. “I have people right now who are calling me, and they don’t plan to start looking until September or October. Is it too early right now to pull credit to figure out what they can do? I don’t think so, because many times people will have something on their credit that maybe has to be taken care of, it gives us time to take care of that.”
He also said the added time gives potential buyers the time to save money for a down payment or closing costs, which will provide them with an added advantage once they’re ready to buy.
Can a pre-approval expire?
Beham explained that pre-approvals do expire. “Ours expire after 120 days simply because your credit report expires at that point,” he said. “But technically, if you don’t mess up your credit, you don’t lose your job, you don’t file bankruptcy, or you don’t buy a bunch of other stuff, you’re still going to be pre-approved. We would just need to get an updated credit report as well as your pay stubs.”
Can you get denied for a loan if you’ve been pre-approved?
Benham said the short answer is yes, you can get denied for a loan, even if you’ve been pre-approved.
“I’ve had people who are under contract on a home, or they’ve been pre-approved and something changes,” he explained. “For example, you have a late payment on a credit card or installment account, and it drops your credit scores. That could present a problem. Maybe you file bankruptcy. Or you’re late on your house payment. If you currently own a home and you’re qualified to purchase another home, but for some reason you miss a house payment during that period, it will drop your scores.”
He added that a change in job could cause issues as well. “That’s another reason to be working with a lender where you can have that conversation,” he said. “It can affect you quite a bit.” Benham said he likes to stay in touch with his clients through the process to find out any status changes they may have along the way.
Likewise, don’t use credit cards to prepare for a home purchase. “Once you’re in the house, then you can go out there and increase your debts,” he explained. “We’re not re-qualifying you post-closing.”
Benham also encouraged potential buyers to put in the work and talk to their lender about their specific financial needs. “Consumers want to make sure that they talk with their lender about what payments are going to be and what they’re going to need at closing as far as cash,” he said. “That seems to be something that a lot of people skip over when they’re getting pre-approved, and they’re caught off guard. It’s very important that when you’re going out there looking at home, that you know what those numbers are.”
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