Ready to Buy A Home? Use these tips to work through the pre-approval process.

Ready to Buy A Home? Use these tips to work through the pre-approval process.

In today’s competitive home market, buyers need to have every advantage once they start the process to make an offer on their dream home. One important step is getting pre-approved for financing with your financial institution. Most sellers are more willing to negotiate with pre-approved buyers, so why not start your house buying process at your credit union and be ahead of the game before you attend your first open house?

Pre-qualification vs. Pre-approval – What’s the Difference?

A mortgage pre-qualification is useful because it gives an estimate of how much a buyer could afford to spend on a home. A pre-approval is much more valuable in the negotiation process. It means that the lender has checked the buyer’s credit and verified their documentation to approve a specific loan amount for a period of 60 to 90 days.

How can I get pre-approved?

To get pre-approved, you’ll need the following:

  • Proof of assets 
  • Proof of income
  • Good credit
  • Employment verification
  • Any additional documents required by your lender

Proof of income usually requires W-2 wage statements from the past two years, recent pay stubs showing income as well as year-to-date income, proof of any additional income such as alimony or bonuses, and the two most recent years’ tax returns.

Proof of assets include bank statements and investment account statements to prove that the buyer has funds for the down payment and closing costs, as well as cash reserves.

Good credit equates to a FICO score of 620 or higher for approval on a conventional loan or Federal Housing Administration (FHA) loan. Lenders typically reserve the lowest interest rates for customers with a credit score of 760 or higher. FHA guidelines allow approved borrowers with a score of 580 or higher to pay as little as 3.5% down on their home purchase.

Employment verification requires the lender to verify your employment and your salary. This may include the lender contacting your current and previous employers. If you are self-employed, you will need to include additional paperwork, which may include the two most recent years’ tax returns with all the appropriate schedules.

Additional documentation may include the borrower’s driver’s license and borrower’s Social Security number and signature in order to pull a credit report. Additional paperwork may also be required to accomplish this.

Why get pre-approved?

Potential buyers benefit in several ways by consulting with a lender and obtaining a pre-approval letter. First, they have an opportunity to discuss loan options and budgeting with the lender. Second, the lender will check the buyer's credit and unearth any problems. The homebuyer will also learn the maximum amount they can borrow, which will help set the price range. Using a mortgage calculator is a good resource to budget the costs.

Final approval happens once an offer on a home is received, the appraisal on the property is completed and the loan is applied to the property.

Getting pre-approved for a mortgage gives the buyer bargaining power, since they have mortgage financing already lined up and can make an offer to the seller on a home with the knowledge that they can follow through if the offer is accepted.

Let your friends at Allegius Credit Union help you through the pre-approval process. We work closely with CU Mortgage Service to meet your mortgage needs. Learn more at