When you’re preparing to finance a home or investment property, you’ll hear two common terms: pre-qualification and pre-approval. Pre-approval is the one to pay attention to and the most important.
When you pre-qualify for a mortgage, you get a ballpark estimate of how much you might be able to borrow based on your overall financial condition. It’s essentially a lender saying, “We’ll probably give you this much money to buy a home, but you’ll need to submit financial documents before we can give you a definite answer.”
Prequalification gives you an opportunity to establish a home buying budget and find the right mortgage option for your needs. But that’s about it.
However, if you want to house-hunt seriously (or look for an investment property), you’ll need preapproval. Pre-approval is the industry standard; prequalification is not.
When a lender pre-approves you for a loan, it requires you to prove your income. You’ll have to prove that you bring in (and owe) the amounts you say you do. A pre-approval is a conditional commitment a lender makes to actually let you borrow a specific amount of money.
Getting pre-approved for a mortgage will come in handy when you are ready to put in an offer on a house or property, especially in a hot market. Sellers will be more likely to accept your offer because you are more likely to secure a mortgage and actually close the sale than you would be if you were only prequalified.
What Do I Need to Get Mortgage Preapproval?
You’ll need several documents to get preapproved for a mortgage, including:
- Tax returns from the past two years
- Copies of your W-2 forms and two most recent payroll stubs or a year-to-date profit-and-loss statement if you’re self-employed
- Proof of other income
- Bank statements from the past two months
- Statements from retirement and brokerage accounts, as well as investment accounts and CDs
- A current mortgage statement
- Marriage, divorce and child support documents
- Down payment gift letters if you are using a down payment gift
If you need help finding a lender, we know several in the area and have listed them on this website.
Are You Ready to Find the Perfect Home or investment property in Silicon Valley?
Call or text us at 408-210-2400 to talk about what you need – we’ll help you find it.
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