Mortgage preapproval: What you need to know

Do you know what the first step is after making the decision to purchase a new home? It’s not finding a real estate agent, or even starting an online search. Working with a lender to learn how much home you can afford is the critical initial step to take before looking for the home of your dreams. By getting pre-approved today, you can shop with confidence tomorrow. Think of a mortgage preapproval as your ticket to go out into the real estate market with confidence.

According to the Consumer Finance Protection Bureau, there’s not much difference between getting pre-approved or pre-qualified for a mortgage. “In practice both terms refer to a letter from a lender that says the lender is generally willing to lend to you, up to a certain amount and based on certain assumptions.” What’s important is that the lender puts in writing that you are pre-approved for a loan up to a specific loan amount.

Mortgage lenders will check your credit as well as look at your earnings, debts and savings. It’s important to note that a mortgage pre-approval letter doesn’t guarantee a home loan. For example, if mortgage rates rise or your credit score changes you may need to go through the pre-approval process again.

Step 1: Start by gathering some important basic financial information. This includes your gross monthly income before taxes (include all sources if more than one) plus your total monthly debt payments such as car payments, credit card minimums, child support payments and student loan payments. Monthly debt payments do not include utility bills, rent or other debts that will be paid off that month or will disappear once you purchase the home.

Step 2: Once you have your most current documentation gathered, use the Guild Mortgage loan pre-approval calculator to help determine affordability. Our free calculator will indicate whether you meet minimum requirements for a home loan as well as give you a total monthly payment and amount–broken down into principal, interest, taxes and insurance detail–that you can afford based on the information you provided.

Step 3: Don’t wait until you’re ready to buy a home to get pre-approved for a mortgage. Doing so online is a great way to start. The earlier you begin the process, the better in case you have potential issues with your credit that need to be corrected. Now is the time to connect with a knowledgeable residential loan officer in your community to find out where you stand and get one step closer to home ownership goals.