What Every Home Buyer Absolutely Needs To Know About Pre-Approvals

Getting pre-approved for a mortgage is a crucial first step in the home-buying journey. It tells sellers you're a serious, qualified buyer and helps you understand how much you can borrow. But not all letters are created equal. It's important to understand what kind of pre-approval you have.

Decoding Your Pre-Approval Letter

Imagine this: a real estate deal falls apart at the last minute. Why? Because the lender didn't run a credit check until the very end! They didn't run credit until the end! This is why it's essential to ask your lender what type of pre-approval you're getting.

The Fully Underwritten Pre-Approval

The gold standard is a fully underwritten pre-approval. This means an underwriter has reviewed your financial information. What are the benefits? It helps identify and address potential issues early on, minimizing surprises during the home-buying process. It decreases risk dramatically and you can shop confidently

"I Know I'm Approved": Proceed with Caution

Some buyers think they "know they're approved" and skip the thorough pre-approval process. But it’s important to get it right, as underwriting guidelines can be complex.

Consider someone who is paid in Restricted Stock Units (RSUs). They might not realize that only certain lenders can work with that type of income. There are complexities of how that income is viewed by lenders. Or the way lenders look at income can be different than reality.

Income Reality vs. Underwriting Reality

Underwriting guidelines for income can be very different from how people perceive their own income. Here’s an example:

You currently make $10,000 a month in commissions.
Last year, you only made $5,000 a month.
The lender will likely average your income to $7,500 a month.
This could affect how much you qualify for.

Pre-Approval Expiration Dates

A common question is, "How long is my pre-approval good for?" Here's what you need to know:

Hard credit pull: Good for 120 days.
Income and asset documents: Generally good for 60 days.

But don't worry, your pre-approval can often be extended! You don't need to feel pressured to buy a house within that initial timeframe. Once the income and asset documents expire, lenders can update them without pulling a new credit report (as long as the original credit report is still valid). Unless it has been over a year, then you would probably want to fill out a new application.

Life Changes After Pre-Approval

Just because you're pre-approved doesn't mean you can make any financial changes without affecting your approval. All pre-approval letters state that the approval is based on the information provided and is subject to change.

Does this mean you can't eat out? No, you don't need to change your whole life. But it's always a good idea to contact your lender before making any major financial decisions, like:

Buying a car
Quitting a job

Lenders monitor your credit throughout the transaction and get alerts about new credit inquiries. Also, income is verified right before closing through third-party verification. Lenders can't accept verification from friends or family.

If you lose your job or have other significant changes, be honest with your lender. There may be options available. The lender will work with you to update your pre-approval.